US Treasuries rose in price on Monday, getting a mild lift from the purchases of fund managers who saw Friday's selloff as overdone and as data showed that fears over dramatically rising yields may be overstated in light of a still moderate US economic recovery.
Fresh balance sheets for the start of the second quarter boosted buying and retraced weakness from Friday when Treasuries ended their worst quarter since the final quarter of 2010. "There was a big down trade on Friday in a thin market as balance sheets were constrained for month- and quarter-end. We've seen the market take back a lot of that today," said Dan Mulholland, a Treasuries trader at RBC Capital Markets in New York.
Mixed data on Monday also showed that the US economy is growing at a gradual clip, boosting the view of Federal Reserve Chairman Ben Bernanke that risks to growth remain. In a series of discussions last week, Bernanke emphasised it was too soon to declare victory in the US economic recovery from a deep financial crisis. He warned policymakers against becoming complacent.
There has been "an explicit campaign by the Fed - Fed Chairman Ben Bernanke and New York Fed President William Dudley, in particular - to talk down US rates," said Eric Stein, vice president and portfolio manager at Eaton Vance Management in Boston. Data on Monday showed that growth of US manufacturing picked up last month though measures of new orders and exports eased Separate data also showed that construction spending suffered its biggest drop in seven months in February. Benchmark 10-year Treasuries have retraced around half their losses taken since mid-March, when the yields jumped by around 40 basis points to an approximate five-month of high of 2.40 percent.
The 10-year note was last up 5/32 in price on Monday to yield 2.20 percent, down from 2.21 percent late on Friday. The 30-year bond was unchanged in price to yield 3.34 percent. The bonds continued to underperform, after coming under pressure on Friday when the Fed announced it would buy fewer of the long-term bonds in its "Operation Twist" program in April than it did in March, and more 7-year notes.
The announcement appeared to be a return to practices before March, when the Fed probably found itself behind in purchases on the long end of the curve, said Scott Sherman, interest-rate strategist at Credit Suisse in New York. "They had fallen short of their target," he said. "In March, it looked like a one-month catch-up measure. Now the April schedule is back to the old purchase targets in those sectors."
On Monday, the Federal Reserve bought $4.55 billion in notes due 2020 to 2021 from $14.20 billion submitted. On Tuesday, it will buy up to $1.5 billion in Treasury Inflation-Linked Securities due between 2018 and 2042. The Fed also plans two buybacks on Wednesday, including up to $2 billion in debt due 2036 to 2042, and as much as $5 billion in notes due 2018 to 2020.