TREASURIES-Bond prices climb as U.S. durable goods data drag

Fri Jul 25, 2014 10:05am EDT

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By Michael Connor

NEW YORK, July 25 (Reuters) - U.S. Treasuries prices jumped on Friday, with fixed-income traders disappointed by soft spots in U.S. durable goods data, knocking benchmark 10-year yields back below 2.50 percent.

Despite a heftier-than-forecast 0.7 percent overall rise during June of long-lasting U.S. manufactured items, analysts and traders focused on weaknesses in airlines and other sectors that shakes optimism about U.S. economic growth.

"The underlying tone of this report was disappointing," said TD Securities strategist Millan Mulraine. "The weak performance in core capital goods shipments ... suggests that this segment of the economy is unlikely to contribute much to economic activity this quarter. As a result we see some downside risks to our on-consensus expectation for a 3.0 percent (quarter over quarter) rebound in (gross domestic product) in Q2."

Treasury prices had been up moderately or flat amid weakness in European stock markets shortly before the Commerce Department report but climbed afterwards. Price gains were largest in long maturities.

The 30-year Treasury bond last traded up 25/32 in price, cutting its yield to 3.259 percent, after peaking at 3.304 percent.

Ten-year Treasuries were up 8/32 in price to yield 2.478 percent. The yield had been at 2.503 percent just before the durable goods report.

"With that disappointment, it adds still adds another layer of negative color for the second quarter," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.

"Recent business surveys suggest that business is turning up but we are not getting confirmation of that in the numbers this morning."

The reported increase in orders for durable goods, which range from toasters to aircraft that are meant to last three years or more, was above economists' expectations for a 0.5 percent rise and followed a 1.0 percent drop in May.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 1.4 percent after declining 1.2 percent the prior month. The gain in the so-called core capital goods outpaced economists' expectations for only a 0.5 percent increase.

Many Treasury traders were trading with an eye to next week, when Federal Reserve policymakers meet and data on American employment will be issued, a frequent market-mover, Vogel said.

"It is a reaction to the data as people consider their strategies and tactics for next week," Vogel said. (Reporting by Michael Connor; Editing by James Dalgleish)

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