TREASURIES-U.S. bond yields dip on weak U.S. data, short-covering

Wed Apr 23, 2014 3:58pm EDT

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By Sam Forgione

NEW YORK, April 23 (Reuters) - U.S. Treasuries yields fell on Wednesday after weak U.S economic data spurred safe-haven bids and traders covered short positions against bonds following a selloff in recent sessions.

The Commerce Department said sales of new U.S. single-family homes dropped 14.5 percent to a seasonally adjusted annual rate of 384,000 units in March, declining for a second consecutive month.

Financial data firm Markit, meanwhile, said its preliminary, or "flash," U.S. Manufacturing Purchasing Managers Index dipped to 55.4 in April from 55.5 in March. Economists polled by Reuters expected a reading of 56.0.

"You cannot blame the new home sales data on the weather, as the case was in early winter," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

Some traders had expected a continuation of stronger U.S. economic data to show that activity was improving after a brutally cold winter.

Traders also said market participants were covering short positions after a selloff in safe-haven bonds in recent sessions after Russia, Ukraine, the European Union and the United States issued a joint statement on Thursday to ease tensions in Ukraine.

The difference between the share of investors who are short longer-dated Treasuries and those who are long rose to its highest level in about 11 months, a J.P. Morgan Securities survey released on Tuesday showed.

The share of "short" investors exceeded the share of "long" investors by 23 percentage points on Monday, up from 21 points last week. This was the most since May 28, 2013, it said.

Traders also said that a revival of concern over the Ukraine crisis has supported safe-haven bids after last week's joint statement had only limited success in suppressing separatist conflict in the country.

"A little flight to quality was all it took for traders to cover some of their short positions," said Josh Stiles, director of research at IDEAglobal in New York.

Treasuries prices maintained their higher levels after the Treasury Department's auction of $35 billion in five-year notes on Wednesday, which was the second round of $96 billion in new supply this week. The Treasury will sell $29 billion in seven-year notes on Thursday.

"It was not, by any means, a weak auction," said Lederer of Cantor Fitzgerald.

The bid-to-cover ratio, a measure of overall bidding interest, came in at 2.79, compared with a 12-month average of 2.65. Foreign central banks and other indirect bidders bought 44.93 percent of the latest five-year supply, close to the 12-month average of 45.63 percent.

The benchmark 10-year U.S. Treasury note was last up 11/32 in price to yield 2.69 percent, from 2.726 percent late Tuesday. Prices on 30-year Treasury bonds were last up 20/32 to yield 3.47 percent, from 3.5 percent late Tuesday.

Prices on five-year Treasury notes were last up 5/32 to yield 1.71 percent, from 1.75 percent late Tuesday.

The Federal Reserve bought $2.28 billion in Treasuries maturing between August 2021 and February 2024 on Wednesday as part of its ongoing asset purchases, which had little effect on Treasuries prices.

On Wall Street, all three major U.S. stock indexes traded lower as gains in Boeing and Gilead were offset by slides in AT&T and the wider biotech sector. (Reporting by Sam Forgione; Editing by Peter Galloway)

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