US bonds move higher

Tepid economic data boosted US Treasuries on Thursday as data on new jobless claims, regional manufacturing and sales of existing homes argued for accommodative monetary policy in the months and years to come, a bullish development for bonds. Recent US data that has pointed to no more than modest US economic growth has kept Treasuries yields in check, with the benchmark 10-year note yield back below 2 percent.
Thursday's batch of data included higher-than-forecast new US jobless claims count last week, lacklustre mid-Atlantic manufacturing in April and a home sales drop in March. "Today's US reports revealed mostly disappointments, as the winter updraft is apparently losing steam into April," said Michael Englund, chief economist at Action Economics in Boulder, Colorado.
A focus on the eurozone, including debt sales in France and Spain, an upcoming election in France, and weekend meetings of the World Bank and International Monetary Fund provided enough uncertainty to enhance the allure of safe-haven Treasuries. "Clearly, the bond market is very focused on headlines out of Europe right now," said John Hendricks, senior vice president and portfolio manager at Hartford Investment Management in Hartford, Connecticut.
Overnight, closely watched auctions of French and Spanish debt aided safe-haven assets like Treasuries and German bunds. "Spanish and French auctions lit a fire under the bund overnight and we saw the same sort of risk-off demand shift in Treasuries," said Thomas Simons, money market economist at Jefferies & Co in New York. The yield on 10-year Spanish bonds rose after the debt auction, suggesting investors remain concerned about the country's long-term fiscal sustainability.
Benchmark 10-year Treasury notes traded 4/32 higher in price, with their yields easing to 1.96 percent from 1.98 percent late Wednesday. Hendricks said if headlines from this weekend's IMF meeting support the idea of buffering peripheral European economies, that could tend to damp demand for US Treasuries and yields could rise. "We're in a very volatile rate environment and we bounce from one headline to the next," he said.
IMF chief Christine Lagarde said on Thursday she expects to win funding to help the IMF safeguard countries from the euro zone debt crisis. The IMF wants at least $400 billion in new funding, which would double its ability to deal with the euro zone debt crisis and any spillover to other countries. So far, it has raised $320 billion - all from Europe and Japan. A week before another Federal Open Market Committee monetary policy meeting, Montaquila noted Federal Reserve Chairman Ben Bernanke's view is that the US economy has not yet recovered from the effects of the financial crisis.