Treasuries rally

US Treasuries rallied and benchmark yields fell to new six-month lows on Thursday as weaker-than-expected economic data and renewed concerns over Greece's debt added to demand for safe haven debt. Ten-year notes yields also broke below their 200-day moving average and tested key resistance levels, which if they hold below may indicate the notes may have further room to improve.
Weakening data is adding to uncertainty over the impact of the end of the Fed's $600 billion buying program next month on the economy, and some fear that it will further depress growth. "The Treasury market has been reacting to their perception of what the Fed buying will do for the economy and not reacting to the Fed buying per se," said Lou Brien, market strategist at DRW Trading Group.
The government's second estimate of first-quarter gross domestic product growth was below forecasts on Thursday, which some fear may bode even more badly for the rest of the year. Further data disappointments may send 10-year note yields below 3 percent, said Brien.
The notes last yielded 3.07 percent, the lowest level since December 7. The 10-year Treasuries have technical yield resistance at around 3.05 percent, and then at 3 percent. If they fall below this they may next test yields of around 2.90 percent, analysts said.
"For the US economy, it's like Groundhog Day like what we saw a year ago," when the economy weakened after the end of the first quantitative easing program said Bob Baur, chief global economist at Principal Global Investors in Des Moines, Iowa, which oversees $235 billion in assets.
That said, "the economy has more momentum than last year," and the slowdown in the first quarter stemmed from factors that will likely be temporary - inclement weather, surging oil prices and supply chain disruption from Japan, he added. Renewed fears over Greece's debt also added a bid for safe haven Treasuries on Thursday, and helped the Treasury sell $29 billion in seven-year notes in its third strong auction of the week.
The new seven-year notes priced at a high yield of 2.429 the lowest since November. Markets were put on edge by comments from Eurogroup chairman Jean-Claude Juncker raising doubts over an IMF disbursement of financial support to Greece in June. The cost of insuring Treasuries in the credit default swap market meanwhile held firm, with five-year contracts trading at around 49 basis points, or $49,000 per year to insure $10 million in debt, and one-year costs at around 30 basis points. The US CDS contracts saw a jump in activity last week as investors focused on the continued political wrangling over raising the country's debt ceiling.