* U.S. manufacturing output falls, adds to doubts about
* Some analysts unconvinced 10-year yield could get back to
* Fed buys $1.25 bln in U.S. bonds
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 14 U.S. Treasury debt yields edged
higher on Friday after steep losses the previous session, but
their uptrend could unravel as a recent run of
weaker-than-expected economic data has raised doubts about the
stability of the U.S. recovery.
A rally in stocks has also contributed to selling in the
U.S. government bond market, with long yields rising for a
second straight week after four consecutive weeks of losses.
While some analysts have attributed the weakness in U.S.
economic numbers to the recent cold spell, a growing number have
said it's probably more than weather-related.
The latest economic report to disappoint was U.S.
manufacturing output, which unexpectedly fell 0.8 percent in
January, recording its biggest drop in more than 4-1/2 years.
Cold weather disrupted production in some parts of the country,
the Federal Reserve said.
A U.S. consumer sentiment report, meanwhile, was fairly
tepid with the index unchanged, as Americans' optimism about
their future prospects was tempered by concern over current
"We have been having this kind of drum beat of slightly
weaker data and what this is doing is that it's starting to
convince some parts of the market that the recovery is not as
solid as the Fed would like us to believe," said Aaron Kohli,
interest rate strategist at BNP Paribas in New York.
"That view is slowly permeating in the market. There's less
certainty that rates (on the 10-year note) can reach the recent
peak of 3.0 percent."
A survey from the Philadelphia Federal Reserve showed that
economists trimmed their forecasts for first quarter U.S.
economic growth to an annual rate of 2.0 percent, down from a
previous estimate of 2.5 percent. The survey expects payroll
expansion to stay somewhat subdued.
In late trading, benchmark 10-year Treasuries
were down 3/32 in price to yield 2.74 percent, up from 2.73
percent late on Thursday. Yields rose for a second straight
Yields on U.S. 30-year bonds were also up at 3.69 percent
from 3.68 percent the previous session.
Five-year notes slipped 3/32 in price to yield
1.52 percent, from 1.51 percent the previous session, while
seven-year notes slid 3/32 with a yield of 2.16
"We are growing tired of the weather not just in terms of
the commute but also as an excuse for the weakness," CRT Capital
"We don't think the market will sell off markedly in the
long wait to see if or when the weather factors give way to what
is, for now, a story that seems one of a broader slowing."
RBS Securities has also stuck with its lower rates theme
despite their recent back-up. For all of 2014, the bank is
looking for real gross domestic product growth on a fourth
quarter-to-fourth quarter basis to decelerate to around 2.1
It has recommended buying dips in Treasuries, favoring
intermediates and the long end, and targeting 2.47 percent in
yield on U.S. 10-year notes over the next month or two.
The New York Fed, meanwhile, purchased $1.246 billion in
bonds on Friday, as part of its quantitative easing program.
Bids totaled $5 billion. The Fed will be in each business day
next week to buy $8 billion to $9.75 billion in Treasuries.
The Treasury also sold $45 billion in 58-day cash
management bills, awarded at a high rate of 0.05 percent. There
were $171.4 billion in bids for a 3.81 cover, a little better
than Monday's 3.38 ratio, and in line with the 3.83 at the prior
offering in October.