US Treasury debt prices rose in choppy trading on Friday as poor domestic data and a drop in US stock prices overshadowed news of strong quarterly growth in the euro zone in the first quarter, which had lifted German and US yields. The initial rise in US yields faded following disappointing data on US Midwest factory activity and the consumer spending and sentiment. Yields turned lower on month-end buying to rebalance portfolios together with 1 percent drop of the Standard & Poor's 500 index.
The latest data reinforced the view US gross domestic growth will remain sluggish following a 0.5 percent first-quarter increase, which was the weakest in two years. The Atlanta Fed said on Friday second-quarter GDP growth is running at 1.8 percent, while the New York Fed called for only a 0.8 percent pace. More signs of another quarter of anemic growth and investors' anxiety about the outcome of Britain's June 23 referendum on whether to leave the European Union, will likely keep the Federal Reserve from raising rates at its June 14-15 policy meeting, traders said.
"The Fed is not in a position to do any tightening. The Fed going one time this year is a low probability," said Tom di Galoma, managing director at Seaport Global in New York. US interest rates futures implied traders see a 15 percent chance the Fed will increase rates in June, little changed from Thursday, according to Reuters data. Still, Dallas Fed President Robert Kaplan said on Friday he could support a rate hike as soon as June or July if the economy improves further, as he expects. US benchmark 10-year Treasury notes gained 5/32 in price for a yield of 1.821 percent, down 2 basis points on the day. The 10-year yield rose 4 basis points in April. In earlier trading, the upbeat growth news from Europe spurred selling in German government bonds, briefly lifting 10-year Bund yields to a near six-week high above 0.3 percent, and put upward pressure on US yields.
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