Treasuries soar

US Treasury debt prices soared on Thursday as reports of unrest in Saudi Arabia deepened concerns over tensions in the Middle East and North Africa, driving a safety bid that analysts said could dominate the market over the short term. Reports that Saudi police had dispersed a protest, with shots heard at the scene, fuelled worries over possible oil supply disruptions and the potential impact of soaring oil prices on the economic recovery.
Treasuries prices were also supported on Thursday by eurozone debt concerns and aggressive bidding in an auction of reopened 30-year bonds. "The entire Treasury market found massive buyers with the headlines out of Saudi Arabia," said Justin Lederer, fixed-income rates strategist at Cantor Fitzgerald. Benchmark 10-year notes traded 29/32 higher in price to yield 3.36 percent, which was the lowest since January 31, below key technical price resistance at 3.38 percent and down from 3.48 percent late Wednesday. Benchmark notes were on track for the biggest single-day dip in yields since February 22.
January fed fund futures rose to the highest in over three months as investors pushed back the expected timing of an interest rate increase by the Federal Reserve. The January futures now imply a 16 percent chance of the Fed raising interest rates to 0.50 percent from 0.25 percent before the end of the year, compared with a 30 percent chance of such a move on Wednesday.
Treasuries extended gains after the high yield in an auction of $13 billion of reopened 30-year bonds came in below expectations, indicating investors were keen to pay up for the longer-dated debt. Wednesday's $21 billion reopened 10-year Treasury note auction also drew a strong bid, while Tuesday's $32 billion sale of three-year notes had about-average demand.
Traders said it was hard to be short given the day's weakness in commodity and stock prices. Major stock indexes were each down more than 1.8 percent. Prices rose despite news on Wednesday that Bill Gross's $236.9 billion PIMCO Total Return fund had sold off all its US government debt.
The PIMCO move did not sour all other funds on the outlook for Treasuries. Bond fund manager Jeffrey Gundlach, chief executive of DoubleLine Capital, told Reuters on Thursday he is short-term positive on the US Treasury market. Five-year notes were last up 17/32 in price to yield 2.04, down from 2.15 percent late Wednesday, while 30-year bonds rose 1-24/32 in price to yield 4.51 percent, down from 4.61 percent late Wednesday.