TREASURIES-Prices advance as 1st-quarter GDP data comes in weak

Wed Jun 26, 2013 12:38pm EDT

Related Topics

* U.S. 1st-quarter GDP revised sharply lower
    * GDP tempers expectations of Fed bond-buying slowdown
    * Treasury will sell 5-year notes later in the day

    By Luciana Lopez
    NEW YORK, June 26 (Reuters) - Prices for U.S. Treasuries
gained on Wednesday after a recent slump took yields to near
two-year highs, with weaker-than-expected U.S. economic growth
in the first quarter pointing to continued potential for
fragility in the world's biggest economy.
    Economic growth in the first quarter was hobbled by moderate
consumer spending, weak business investment and declining
exports, data from the Commerce Department showed on Wednesday.
The government revised down its final estate on gross domestic
product to a 1.8 percent annual rate, down from a previously
reported 2.4 percent pace. 
    "That has the market thinking that the Fed will not be
tapering perhaps as soon as what the market was thinking just
the other day," said Wilmer Stith, co-manager of the Wilmington
Broad Market Bond Fund in Baltimore.
    With markets now more skeptical of a September start date
for a Federal Reserve reduction in its bond purchases, he said,
Treasuries could see more volatility. Data will be key, with any
figures below expectations boosting hopes the Fed will keep its
stimulus in place.
    If economic data is weak, "the punch bowl stays where it is.
Good news, economically, the punch bowl gets moved a little bit
further away," Stith said. 
    Some analysts said that upcoming data, including labor
market data for the month of June due out at the end of next
week, could carry more weight in the Fed's decisions than the
first-quarter GDP.
    "With Q1 now well in the rear-view mirror, next week's data
from the ISM and non-farm payrolls may still be more important
in determining when and by how much the Fed tapers QE," Andrew
Grantham, an economist with CIBC World Markets Economics in
Toronto, said.    
    
    The 10-year note on Wednesday rose 13/32 in
price to yield 2.565 percent, from 2.614 percent on Tuesday.
    The 30-year bond rose 16/32 in price to yield
3.599 percent, compared with 3.628 percent late on Tuesday.
    Global investors had shed assets from stocks to bonds since
last Wednesday, when the Fed's chairman, Ben Bernanke, suggested
the central bank could slow its bond buying program as the
economy improves.
    The prospect of the Fed decreasing or ending its monthly
purchases of $85 billion in Treasuries and mortgage-backed
securities sent markets into a tailspin, with yields on the
benchmark 10-year note reaching their highest since August 2011.
    The jump in yields, in fact, was a surprise, the president
of the Minneapolis Fed, Narayana Kocherlakota, said on
Wednesday.
    The market reaction was "more outsized than I would have
anticipated personally," Kocherlakota, a dovish U.S. central
bank official who has a vote on the Fed's policy committee next
year, said on CNBC television. 
    The current yields could draw in investors later on
Wednesday, when the Treasury will sell $35 billion in five-year
notes.
    The Treasury sold $35 billion in two-year notes on Tuesday
at a yield of 0.43 percent, the highest since May 2011, and will
     sell $29 billion in seven-year notes on Thursday. 
    As part of its asset purchase program, the Fed on Wednesday
bought $3.136 billion of Treasuries maturing August 2020 through
February 2023.
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