Treasury prices rallied on Wednesday as heavy buying by the Federal Reserve and a lack of new Treasury supply contributed to demand for the newly cheapened US debt. Prices also got a boost from weaker-than-expected housing data, while investors took advantage of a recent rise in yields to do some bargain hunting.
In a sign of strength for the rally, the 30-year Treasury yield briefly broke back below a technically significant level of 3.3851 percent, its 200-day moving average. It hit 3.3725 percent before returning to a level above the marker. "Clearly we've had a large move to higher yields over the last week or so - this is more the rubber band effect," said Adam Brown, co-head of rates trading at Barclays Capital in New York.
Treasuries prices plunged last week and yields solidly broke above ranges that had held for four and a half months, after data suggested the US economic recovery was gaining steam. That lowered expectations of further stimulus from the Federal Reserve. The recent price decline, which last week added over 25 basis points to benchmark yields, offered some investors a chance to buy lower-risk US government debt at prices they have not seen in months.
"Just like everything, we overdo it. We overdo it sometimes on the upside and this time we overdid it on the downside," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle. "I'm not surprised to see some buying emerging, especially because the economic statistics, at least in the housing sector, seem to be coming in on the softer side," Hurley said.
The National Association of Realtors said existing home sales slipped 0.9 percent to an annual rate of 4.59 million units in February. Economists polled by Reuters had expected sales to rise to a 4.62-million-unit sales pace last month. But January's sales pace was revised up to 4.63 million units from the previously reported 4.57 million units.
US benchmark 10-year Treasury notes were trading 16/32 higher in price to yield 2.30 percent, down from 2.36 percent late Tuesday. Thirty-year bonds were 1-5/32 higher to yield 3.38 percent, down from 3.45 percent a day earlier. The Federal Reserve's buying of longer-dated Treasuries under its latest stimulus program, nicknamed "Operation Twist," was a significant factor propping up debt prices.