* Surprise March retail sales drop dims U.S. growth view
* Cyprus seeking more aid fuel safe-haven bids for bonds
* Bets on Japanese demand persist despite mediocre auctions
* Benchmark Treasuries set to pare most of week's loss
By Richard Leong
NEW YORK, April 12 The U.S. government debt
market rallied on Friday as data showing a surprise decline in
consumer spending in March darkened investors' view on the U.S.
economy which might still need generous support from the Federal
News about cash-strapped Cyprus asking for more help its
struggling economy helped to stoke safe-haven bids for bonds,
pushing up the prices on benchmark 10-year Treasuries and
erasing much of their losses from earlier this week.
"The recent data have turned out weaker-than-expected. This
was reinforced by today's retail sales figures," said Jeff
Given, portfolio manager at Manulife Asset Management in Boston.
"Treasuries will remain fairly well bid with also what's going
on in Japan."
Persistent bets stemming from Bank of Japan's $1.4 trillion
asset purchase program have underpinned support for U.S. bonds.
Traders have speculated Japanese insurers and pension funds
will pour money into Treasuries and higher-yielding overseas
assets, anticipating BoJ's aggressive campaign will depress
yields at home with the goal to stimulate its own economy. This
is even more aggressive by some measures than the U.S. Federal
Reserve's current bond purchase scheme, analysts said.
There has been no strong sign, however, that Japanese demand
for Treasuries has jumped since BoJ unveiled its stimulus plan
last week. Data on this week's three U.S. government debt
auctions, worth a combined $66 billion, did not suggest any
pickup in foreign bids for U.S. bonds.
On the open market, the benchmark 10-year note
last traded up 20/32 in price at 102-16/32 to yield 1.721
percent, down 7.0 basis points from late on Thursday. The
10-year yield was on track to end up about 1 basis point on the
week after falling the previous four weeks from an 11-year month
high set in early March.
The 30-year bond last traded up 1-16/32 in price
at 104 to yield 2.922 percent, down 7.5 basis points on the day
but up 4.6 basis points from a week earlier.
U.S. Treasuries fared better than Japanese government debt.
The yield premium on 10-year Treasuries over their Japanese
counterparts shrank to 1.10 percentage points on Friday, down
from 1.24 points on Thursday and the tightest level since late
January, according to Reuters data.
MORE WORRISOME U.S. DATA
The March U.S. retail sales reading, which fell
0.4 percent, was the latest evidence that domestic economic
growth slowed in the latter part of the first quarter after a
Disappointing data, including an abysmal March payroll
report a week ago, led economists to mark down their forecasts
for first-quarter gross domestic product to the high-2.0 percent
to low-3.0 percent area, from an earlier mid-to-high 3.0 percent
range. Many economists forecast second quarter GDP, based the
latest data, might slow to roughly 1 percent.
This dour prospect for the American economy will likely keep
Fed Chairman Ben Bernanke and other top policymakers clinging to
their near-zero interest rate policy and purchases of bonds,
currently at $85 billion a month, to avert a recession.
"For bonds, it's a win if Bernanke and the Fed remain
all-in," said Robbert Van Batenburg, director of market strategy
at Newedge USA LLC in New York.
Boston Federal Reserve President Eric Rosengren on Friday
told CNBC television: "This is not the time to take away the
While traders' worries about the U.S. economy intensified,
they cast a wary eye on Europe as the region struggled to
contain its festering debt crisis.
Cypriot President Nicos Anastasiades told reporters in
Nicosia on Friday that he would send a letter to European
Commission President Jose Manuel Barroso and European Council
President Herman Van Rompuy seeking extra assistance for Cyprus,
given the bad economic situation of the island.
Euro zone finance ministers said, however, there were no
plans or requests beyond the 10 billion euros of loans already
on the table.