Treasuries make modest gains

Longer-dated US Treasury debt prices were steady to higher on Wednesday as fears the economy could be slipping back into recession spurred investors to seek out the safety of US government debt. Gains were muted however. Longer-dated bonds soared through the morning but pared those gains in the afternoon as stocks shed most losses and Treasury debt yields pulled back from nine-month lows.
"We saw some of the richest levels in months and months today, so it is not surprising to see some profit-taking on the Treasuries move - that was motivated by the rebound in stocks," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
Still, worries over the global economic outlook maintained a bit of a bid for Treasuries, and benchmark 10-year notes traded 1/32 higher in price to yield 2.61 percent. Benchmark yields dipped to 2.55 percent on Wednesday, marking the lowest since early November.
Economic data supported a bid for bonds. An index of US non-manufacturing activity showed growth slowed in July, while the government said factory orders fell 0.8 percent in June.
US private employers added 114,000 jobs in July, payrolls processor ADP said, a less discouraging report than some had anticipated, but tepid nonetheless. "Employment growth ... is weak, but not anaemic," said Swiss Re chief economist Kurt Karl. One government bond strategist said fear that US sovereign debt would be downgraded played into the early rally.
Bond prices have rallied and yields have sunk as investors sharply tempered their views of the economy's first-half growth and cut expectations for the second half. Worries about eurozone debt also supported the bid for US Treasuries a day before two Spanish bond auctions, which were seen as a key test of investor appetite. The worries over evidence the economic recovery was losing traction were fuelled late last week by government data showing anaemic US growth in the first half of the year.
Investors were mulling the idea the Federal Reserve may have to embark on another Treasuries purchase program to prop up growth. Thirty-year Treasury bonds traded 13/32 higher in price to yield 3.89 percent, down from 3.91 percent late Tuesday. Bonds were on track for the biggest five-day dip in yields since December, 2008, during the height of the global financial crisis.