Bonds hold firm after more data points to slower growth

TOKYO: US Treasuries held firm on Friday after data on jobless claims and the mid-Atlantic region's factory activity added to evidence of a slowdown in the US economy.

"It's becoming clear that the US economy is slowing down. It has lost the momentum it had at the beginning of year. People also expect the impact of automatic spending cuts to set in from now," said Tomoaki Shishido, fixed income analyst at Nomura Securities.

Initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 352,000, with its four-week moving average for new claims, a better measure of labour market trends, also rising 2,750 to 361,250.

The Philadelphia Federal Reserve Bank said its business activity index fell to 1.3 in April from 2.0 in March. A reading above zero indicates expansion in the region's manufacturing.

The yield on the 10-year notes stood at 1.701 percent , rising slightly from 1.686 percent in late US trade in a knee-jerk reaction after risk asset prices gained on comments from Japanese Finance Minister Taro Aso that he faced no opposition to Japan's policy at the meeting of Group of 20 policy makers.

Still, the yield stood not far from a four-month low of 1.673 percent hit earlier in the week on growing expectations slower U.S growth is likely to mean the Federal Reserve will keep its bond buying at the current pace.

Indeed St. Louis Fed President James Bullard, seen as a centrist on policy and a voting member of the Fed's policy committee this year, said on Thursday the Federal Reserve should buy bonds if inflation continues to fall.

In a sign concerns about inflation is waning sharply prices of Treasuries designed to protect investors from inflation dived after a weak auction and as a spate of disappointing economic data eased worries about inflation.

The yield on the 10-year TIPS rose sharply on Thursday to -0.576 percent on Thursday, driving down the breakeven inflation -- the level of inflation investors expect -- to 2.26 percent, its lowest level in more than seven months.