TREASURIES-U.S. bond prices gain on weak stocks, Chinese data

Thu Jan 23, 2014 12:04pm EST

Related Topics

* Weaker-than-expected Chinese data revives bond bids

* In-line U.S. jobless claims signal moderate job growth

* U.S. to debut $15 bln in two-year floating-rate notes

* U.S. to sell $15 bln in 10-year inflation-protected debt

By Richard Leong

NEW YORK, Jan 23 (Reuters) - U.S. Treasuries prices climbed on Thursday as losses on Wall Street and data suggesting a slowing in Chinese manufacturing revived safe haven bids for bonds.

Chinese factory figures and an industry report showing weaker factory growth in the United States reduced bets the Federal Reserve would accelerate its pace of trimming its bond-purchase stimulus. This helped propel benchmark yields to their lowest levels in nearly six weeks.

China's Flash Markit/HSBC PMI fell to 49.6 in January from December's 50.5, showing a faster rate of decrease in new export orders and employment. A reading below 50 signals a contraction in the manufacturing sector of the world's second-largest economy.

"We started the day in positive territory on the Chinese data, which was a bit concerning," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

Bond investors are starting to look ahead to next Wednesday, when the Treasury will hold its inaugural auction of two-year floating-rate notes.

This is the first new type of U.S. government debt security since the introduction of Treasury Inflation-Protected Securities in 1997.

The debut of $15 billion in the two-year floating-rate note issue joins next week's fixed-rate supply of two-year debt ($32 billion), five-year notes ($35 billion) and seven-year debt ($29 billion).

In the meantime, the Treasury will sell $15 billion in 10-year TIPS at 1 p.m. (1600 GMT). Traders expected the latest 10-year TIPS supply to sell at a yield of 0.669 percent, which would be highest yield set at a 10-year TIPS auction since May 2011.

While U.S. and Chinese manufacturing data fell short of expectations, a government snapshot of the domestic labor market was mildly encouraging.

The U.S. Labor Department said 326,000 workers filed for first-time unemployment benefits in the week ended Jan. 18, matching the median forecast among economists polled by Reuters.

MIXED BAG

"The recent bag of data have been mixed at best, but it's not enough to derail the Fed from tapering at each meeting this year. The data have to really roll over," R.W. Pressprich's Milstein said.

Fed policy-makers will meet next Tuesday and Wednesday and analysts anticipate they will decide to further shrink their third round of quantitative easing which is aimed to hold down long-term borrowing costs to help the economy.

In December, the Federal Open Market Committee pared its monthly purchases of Treasuries and mortgage-backed securities by $10 billion to $75 billion in January. The Fed's policy-setting group is expected by some analysts to cut its monthly purchases by another $10 billion at its upcoming meeting.

Some traders and analysts downplayed the rise in bond prices as trading volume has remained below-average due to holiday-shortened week and a lack of top-tier U.S. economic data.

"We squeezed some of the shorts out, but we have been largely stuck in a narrow range for 1-1/2 weeks," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities USA in New York.

On the open market, benchmark 10-year Treasury notes were 16/32 higher in price with a yield of 2.801 percent, down 6 basis points from late on Wednesday.

The 10-year yield touched 2.803 percent following a weaker-than-expected rise in U.S. existing home sales in December.

The 30-year bond rose 29/32 in price to yield 3.708 percent, down 5 basis points from Wednesday's close. The 30-year yield hit 3.706 percent earlier, which was its lowest level since early November, according to Reuters data.

The long-dated maturity was also bolstered by the Fed's latest QE3 buy-back, where the central bank purchased $1.39 billion in Treasuries due 2038-2043.

On Wall Street, the three major stock indexes fell sharply in early trading with the Standard & Poor's 500 index losing 0.9 percent on the weak Chinese factory data.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.