TREASURIES-Yields inch higher; weak data weighs on U.S. outlook

Fri Feb 14, 2014 10:42am EST

Related Topics

* U.S. manufacturing output falls, adds to doubts about economy

* Some analysts unconvinced 10-year yield could get back to 3 pct

* Fed back in market to buy $1-$1.25 in U.S. bonds

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 14 (Reuters) - U.S. Treasury debt yields edged higher on Friday after steep losses the previous session, but their uptrend has started to waver as a recent run of weaker-than-expected economic data has raised doubts about the stability of the U.S. recovery.

While some analysts have attributed the weakness in the U.S. economic numbers to the recent cold spell, a growing number have said that it's probably more than weather-related.

The latest economic report to disappoint was U.S. manufacturing output, which unexpectedly fell 0.8 percent in January, recording its biggest drop in more than 4-1/2 years. Cold weather disrupted production in some parts of the country, the Federal Reserve said.

A U.S. consumer sentiment report, meanwhile, was fairly tepid with the index unchanged, as Americans' optimism about their future prospects was tempered by concern over current finances.

"We have been having this kind of drumbeat of slightly weaker data and what this is kind of doing is that it's starting to convince some parts of the market that the recovery is not as solid as the Fed would like us to believe," said Aaron Kohli, interest rate strategist at BNP Paribas in New York.

"That view is slowly permeating in the market. There's less certainty that rates (on the 10-year note) can reach the recent peak of 3.0 percent."

A survey from the Philadelphia Federal Reserve showed that economists trimmed their forecasts for first quarter U.S. economic growth to an annual rate of 2.0 percent, down from a previous estimate of 2.5 percent, with payroll expansion seen remaining somewhat subdued.

In mid-morning trading, benchmark 10-year Treasuries were down 3/32 in price to yield 2.74 percent. Yields were on pace to rise for a second straight week.

Five-year notes slipped 3/32 in price to yield 1.52 percent, while seven-year notes slid 4/32 with a yield of 2.17 percent.

The New York Fed, meanwhile, is back on Friday to purchase $1 bln to $1.25 bln in bonds. The Treasury, on the other hand, will sell $45 bln in 58-day cash management bills.

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