TREASURIES-U.S. 10-year yield hits 2-month low on growth concern

SINGAPORE, April 2 Tue Apr 2, 2013 1:49am EDT

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SINGAPORE, April 2 (Reuters) - The U.S. 10-year Treasury yield hit a two-month low in Asia on Tuesday, after data overnight showed a slowing in U.S. manufacturing growth, stirring concerns about its economic outlook.

* Ten-year notes rose about 2/32 in price to yield 1.826 percent. Earlier, the 10-year yield slipped to a low near 1.823 percent, its lowest level since Jan. 24.

* The 10-year Treasury yield has declined after the Institute for Supply Management's gauge of manufacturing activity released on Monday showed that U.S. factory activity grew at the slowest rate in three months in March.

* The economic impact from $85 billion in automatic federal spending cuts that began kicking in on March 1 could start appearing in economic data for May and perhaps even in indicators for April and lend support to Treasuries this quarter, said Tomoaki Shishido, rate analyst for Nomura Securities in Tokyo.

Given such an outlook, the 10-year yield may initially head lower in the current April-June period, said Shishido, who is expecting a 1.7 percent to 2.1 percent range for this quarter.

The 10-year yield could rebound later on, however, if U.S. lawmakers were to decide to retroactively cancel the $85 billion in spending cuts in coming months, he said.

"If that were to occur before the end of June, the 10-year yield might then rise to levels exceeding their levels at the start of this quarter," Shishido said.

Still, one factor that suggests that Treasuries could be vulnerable even in the next week or two is market positioning, Shishido said, adding that were signs that speculators had increased their long positions recently on the back of concerns about Cyprus.

"I think there will be selling (in Treasuries) if economic data comes in strong and the situation in Europe doesn't worsen," Shishido said.

Investor worries that the rescue deal for Cyprus that inflicts losses on bank depositors could be replicated elsewhere in the euro zone, have helped Treasuries rally over the past couple of weeks.

More U.S. economic indicators are on the way this week, including data on factory orders later on Tuesday and jobs data on Friday.

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