Treasuries rally

US Treasuries prices rose on Wednesday, pushing a key benchmark yield below 3 percent as the economy's lagging recovery and a sixth straight day of stock market losses heightened the appeal of safe-haven government debt. A warning from Fitch Ratings agency that the United States probably would not be able to maintain its prized AAA sovereign ratings if it suffered even a "technical" default on its debt did not keep investors from buying US Treasuries.
The Fitch statement apparently was heard only as a faint cry in the midst of political jousting over spending cuts and boosting the government's $14.3 trillion debt ceiling before August 2. Fitch said it would downgrade US sovereign ratings to "restricted default" in August if the government failed to honour Treasury notes and some coupon payments on Treasury securities due on August 15.
"You link the debt ceiling and budget reform too tightly at your own risk; the whole system is based on timely payment of principal and interest," said Steve Van Order, fixed income strategist with Calvert Investment Management Inc, a Bethesda, Maryland-based firm with $14.5 billion in assets under management. Fears of a slowing recovery briefly sent benchmark 10-year yields as low as 2.93 percent on Wednesday, down from 3 percent late on Tuesday.
But Treasuries prices trimmed some gains, and yields moved up a bit, when the Fed released its Beige Book, a description of business conditions across the nation. The Beige Book "confirmed the economic slowdown we already knew about, but gave little indication of the nosedive or double-dip investors are worried about," said Cary Leahey, economist at Decision Economics in New York.
Benchmark 10-year notes yielded 2.96 percent in late trade. The Treasury sold $32 billion of three-year notes on Tuesday, and will auction $13 billion of reopened 30-year bonds on Thursday. Thirty-year bonds rose a point in price, their yields easing to 4.20 percent from 4.26 percent on Tuesday. The Treasuries market also got support from the Fed's purchase of $6.409 billion of Treasuries maturing July 2015 through May 2016. The purchases were part of the Fed's efforts to spur lending and economic recovery.