US Treasury debt prices advanced on Thursday, with 30-year bonds snapping a six-session losing streak as a rally in stocks lost momentum after soft earnings from J.P. Morgan Chase & Co and concerns about Europe's plan to recapitalise its banks. Retail buying also helped, traders said, with real money accounts spotted in the five- to seven-year sector.
An auction of $13 billion in US 30-year bonds attracted strong interest, with a record low yield of 3.120 percent compared with market forecasts of 3.157 percent. That propelled 30-year bond prices even higher and pushed yields to session lows. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount offered, was 2.94, above the 12-month average.
Many had expected robust demand at the auction anyway given how much 30-year bonds have cheapened in recent sessions. And for some, the Federal Reserve's buying of long bonds suggested that these securities offered good value. Overall, most analysts have pinned Thursday's gains in the Treasury market on the slide in stocks and any caution that has resurfaced could be short-lived.
"What we're seeing is a classic bond market response to modest equity market weakness," said Jonathan Lewis, chief investment officer, at Samson Capital Advisors in New York, with assets under management of $7.7 billion. "This is a stocks down, bonds up trade, with no material economic catalyst other than we had several days of stocks run-up and bonds sell-off," he added.
Headlines in Europe, however, continued to attract attention, with the latest news suggesting euro zone banks would be given about six months to strengthen their capital under what could be hefty recapitalisation schemes. On balance, though, most investors still believe the European crisis is under control and measures are being taken to avert another credit crunch.
While the bounce in Treasuries could carry on, the general trend for most is still lower, with yields seen tracking higher. "The general sense and feeling is that there is hopefully positive news out of Europe. So it's still a bearish stance out there on Treasuries," said Suvrat Prakash, interest rate strategist at BNP Paribas in New York.
"Going into last week, every few days there would be some sort of negative news and it was just one after the other. And now just the absence of that has allowed our nerves to calm down a bit." Volume in the Treasury market was $178.486 billion after 12 pm Eastern time (1600 GMT), about 15 percent higher than the 20-day moving average for that time of $155.535 billion, ICAP said.
The Treasury market, meanwhile, shrugged off a weekly jobless claims report that many saw as a faintly positive sign for the economy, which would normally spur selling in Treasuries. New US claims for unemployment benefits edged downward last week, according to a government report on Thursday that pointed to a modest improvement in the labour market at the start of the fourth quarter.
In late afternoon trading, the benchmark 10-year Treasury note was up 11/32 in price, last yielding 2.18 percent, down 4 basis points from Wednesday. The 30-year bond rose 1-3/32 in price, yielding 3.14 percent, down five basis points from 3.19 percent at Wednesday's close.