4 Min Read
* Emerging market concerns linger
* Treasuries on track for best month in 20
* Bond prices little changed after U.S. data
By Sam Forgione
NEW YORK, Jan 31 (Reuters) - U.S. Treasuries prices rose on Friday with benchmark yields falling to their lowest level in over two months on lingering troubles in emerging market economies, leading safe-haven bonds to notch their strongest gains in 20 months in January.
Investors continued to flee emerging markets as the latest round of central bank actions failed to offset concern about rising economic and political risks in many developing economies.
"It's a classic flight to quality," said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York. "We're driven primarily by what's happening in emerging markets and stocks."
A rout in emerging market currencies has spurred some central banks to raise interest rates or intervene to soothe markets. Turkey and South Africa hiked rates, while Hungary's central bank stepped in with assurances that it would aid markets if needed, adding to verbal intervention from India and Russia.
The actions failed to eliminate investors' concerns.
"Tightening action on the part of a few central banks is not enough to stem capital outflows from an entire sector," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.
The U.S. Federal Reserve's expected decision on Wednesday to cut its asset purchases by $10 billion to $65 billion a month removed some support from emerging market assets, resulting in steady buying of safe-haven bonds and selling of riskier assets.
The $10 billion cut heightened concerns surrounding Turkey, South Africa and other emerging markets as the U.S. central bank further pared the liquidity that has boosted higher-yielding emerging markets assets.
Fed data released Thursday showed that foreign central banks slashed their holdings of U.S. debt stored at the Federal Reserve by the most in seven months during the past week.
The latest Fed data gave hints that some foreign central banks may have sold their Treasuries holdings to raise cash to buy their own currencies on the open market to stabilize them from further damage due to emerging market jitters.
Month-end buying of Treasuries also supported safe-haven bonds on Friday. The yield on the benchmark 10-year U.S. Treasury note has fallen 35 basis points this month, marking the biggest decline since May 2012. Bond yields move inversely to their prices.
Through Thursday, Treasuries have generated a 1.25 percent total return in January, which is the biggest monthly gain since the 1.71 percent rise in May 2012, according to an index compiled by Barclays.
In contrast, the Standard & Poor's 500 is down about 3.4 percent for the month, on track for its first monthly loss since August.
Data on economic activity released Friday had little impact on Treasuries prices. U.S. consumer spending rose in December according to Commerce Department figures, but an ebb in consumer confidence and signs of cooling in factory activity this month suggested economic growth could moderate in the first quarter.
"It's not enough information to say that things have changed," said Kevin Logan, chief U.S. economist at HSBC Securities in New York, on the new data.
Benchmark 10-year Treasury notes were last up 11/32 in price to yield 2.65 percent, compared with a yield of 2.70 percent late on Thursday. The 10-year yield fell to 2.646 percent earlier, which was its lowest level since early November.
The 30-year Treasury bond was last up 17/32 in price to yield 3.606 percent. The 30-year yield fell to 3.594 percent earlier, its lowest level since late October.
The Fed bought $4.52 billion in Treasuries maturing between Feb. 2018 and Sept. 2018, which had a muted effect on bond prices.
On Wall Street, all three major U.S. stock indexes fell on Friday, with the benchmark Standard & Poor's 500 stock index dropping 0.41 percent.