Yields dip as US stocks fade in holiday-shortened week

NEW YORK: US Treasury yields drifted lower from four-week highs on Wednesday, as Wall Street shares lost steam in a holiday-shortened week and investors got back in the market after a recent sell-off.

Financial markets are closed on Friday for the Good Friday holiday.

"Equities are a little bit weaker and that has helped Treasuries," said Justin Lederer, Treasury trader at Cantor Fitzgerald in New York. "People also just found levels that they were willing to step in and are semi-attractive because we have erased the entire move that started in March."

Since hitting a more than one-year low in late March after the Federal Reserve indicated it will, for now, hold off raising interest rates, benchmark U.S. 10-year yields have risen roughly 27 basis points.

Earlier in the session, U.S. yields benefited from upbeat Chinese data that boosted risk appetite and eased concerns about a slowdown in the world's second largest economy.

Data showed China's economy grew at a steady 6.4 percent pace in the first quarter, as industrial production jumped sharply and consumer demand showed signs of improvement.

"There was mostly exuberance earlier on the recent China data and its overall impact on global growth," said Subadra Rajappa, head of U.S. rates strategy, at Societe Generale in New York.

In afternoon trading, U.S. 10-year note yields slipped to 2.592%, down from 2.594% late on Tuesday.

Yields on U.S. 30-year bonds were also down at 2.991%  from 2.993% on Tuesday.

On the short end of the curve, U.S. 2-year yields fell to 2.402%, compared with Tuesday's 2.416%.

U.S. yields earlier extended their rise after data showed  the U.S. trade deficit fell to an eight-month low in February as imports from China plunged.

Overall though, there has been optimism about U.S. economic prospects and that should push yields higher, analysts said.

"We have always argued that Treasury yields are rich compared to fundamentals and now I think there's a little bit of a catch-up going on," said Societe Generale's Rajappa.

"Treasury yields are now trading in line more with fundamentals. There's also probably a lot of easing priced in the market," she added.

Federal Reserve speakers were particularly upbeat on Wednesday.

Philadelphia Fed President Patrick Harker on Wednesday said believes in the U.S. growth story, which should warrant at least one rate hike this year.

St. Louis Fed President James Bullard, on the other hand, said on Wednesday weak U.S. economic data at the start of the year should change for the better in coming months, and ease some of the concerns among investors about the health of the recovery.

Fed funds futures are now pricing in a less dovish outlook for the Federal Open market Committee, according to Action Economics.

The research firm said the improvement in U.S. and Chinese data and ongoing talk of progress on trade have tempered recession fears, which in turn are reducing the likelihood for a Fed rate cut.