Treasuries yields fall

US Treasury yields fell through key technical resistance levels as weak data added to disappointment over the pace of economic growth and investors moved out of commodity and equities markets back into bonds. Further gains are now seen depending on whether data continues to disappoint economic bulls. Continuing debate over the debt ceiling and heavy supply of corporate debt, however, may counter the rally before benchmark 10-year yields test the key 3 percent area.
Ten-year notes yields fell by around 3 basis points to 3.12 percent breaking below resistance at yields of around 3.14 percent. The notes next face strong resistance at yields of around 3.05 percent. "People still have to get used to lower growth outlook," said Tom Tucci, head of government bond trading at RBC Capital Markets in New York.
US housing starts and building permits fell in April while factory output slumped, showing the economy got off to a weak start in the second quarter, data showed on Tuesday. Earnings reports from several retailers also showed that consumer spending is being hurt by higher costs for gasoline, food and clothing.
A weaker economic outlook is leading some investors to expect the Fed will need to retain loose monetary conditions for longer than some had expected. If the economy cannot achieve sustained growth rates above 2.5 percent, that "will keep interest rates low and the Fed in an easy monetary policy position for a prolonged period," said Ray Humphrey, senior portfolio manager at Hartford Investment Management Co, which manages $159.6 billion in assets.
As data disappoints, investors that had positioned for higher Treasury yields are needing to cover their shorts, and in some cases they are also reallocating money to from commodities and equities back to bonds, said RBC's Tucci. Countering this bid, many "real money" fund managers are selling bonds, giving some pause near the technical resistance levels.
Five-year notes fell by around 2 basis points to 1.79 percent, below technical resistance at around 1.80 percent. Thirty-year bonds yields dropped 4 basis points to 4.23 percent, below resistance at 4.24 percent. Risks that yields may not hold below these levels are that investors will begin to doubt that lawmakers will reach agreement on cuts needed before the debt ceiling, which the Treasury hit on Monday, is raised.
Heavy corporate issuance expected this month could also weigh on yields. Around $9 billion in high-grade corporate deals hit the market on Monday and corporate issuance heated up again with a dozen deals already in Tuesday's pipeline, half of them of benchmark size, according to IFR.