January 18, 2013 / 8:41 PM / 5 years ago

TREASURIES-Bond prices rise as buyers emerge after sell-off

3 Min Read

* Dealers buy bonds to close hedges on corporate supply

* U.S. consumers gloomiest in over a year-TR/U. Michigan

* U.S. financial markets closed Monday for holiday

By Richard Leong

NEW YORK, Jan 18 (Reuters) - U.S. Treasury debt prices rose on Friday as Thursday's market sell-off lured bargain-minded investors and dealers bought bonds to exit hedges on the corporate debt issues they underwrote this week.

A report from Thomson Reuters and the University of Michigan showing Americans' anxiety about the economy at its highest in over a year undercut optimism from upbeat housing data earlier this week, reviving some safe-haven bids for government debt.

Treasuries prices briefly extended Thursday's losses overnight on better-than-expected growth data from China. While the world's second-biggest economy recorded its weakest growth in 13 years in 2012, it captured momentum in the fourth quarter to set up for a growth pickup in 2013.

"We hit the top range overnight, but it wasn't enough to push yields higher. It's just part of the retracement from the sell-off yesterday," said Gennadiy Goldberg, an interest rate strategist with TD Securities in New York.

Benchmark 10-year Treasury notes were last up 11/32 in price at 98-1/32. The 10-year yield fell 4 basis points on the day to 1.845 percent after touching a session high of 1.896 percent.

On the week, the 10-year yield dipped 2 basis points but was still 9 basis points higher than at the end of 2012.

The bond market gradually recovered as traders bought Treasuries to profit from the Federal Reserve's daily bond purchase. The central bank bought $1.57 billion in long-dated debt, part of its $45 billion monthly program aimed to lower unemployment.

Anxiety about Congress not raising the $16.4 trillion federal debt ceiling was another factor that has pushed benchmark yields from their eight-month highs in early January.

Some investors bought more Treasuries to hedge against weaker U.S. growth if the federal government were to default on its debt and enact a series of spending cuts because it cannot raise more cash.

However, others reckoned a U.S. default would damage the long-term appeal of Treasuries and cause a further downgrade in its credit rating.

In the credit default swap market, the five-year cost to insure against a U.S. default hovered at 44 basis points, its highest level since August 2011, during the first debt ceiling fight between U.S. President Barack Obama and Republican lawmakers, according to data firm Markit.

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