* Early March consumer sentiment gauge lowest since Dec 2011
* Fed not expected to halt asset purchases anytime soon
* Money flowed out of bond funds in latest week -Lipper data
By Ellen Freilich
NEW YORK, March 15 U.S. Treasuries prices rose
on Friday as lower stock prices and an unexpected drop in March
U.S. consumer sentiment enhanced the allure of safe-haven U.S.
With $66 billion of new debt supply out of the way this
week, investors were also moving to take advantage of yields
hovering near the highest in almost a year, analysts said.
Prices rose on Friday after the Thomson Reuters/University
of Michigan's preliminary reading on the overall index on
consumer sentiment for early March tumbled to the lowest reading
since December 2011.
"We're past the auctions, we're still near the highest
yields in roughly a year, which are levels that are appealing to
some investors, and the confidence numbers are buoying the
market," said David Coard, head of fixed income sales and
trading at The Williams Capital Group in New York.
Benchmark 10-year Treasury notes on Friday
traded 11/32 higher in price to yield 2.00 percent, down from
2.04 percent late Thursday. Yields remain not far off the
11-month high of 2.09 percent reached late last week after data
showing stronger-than-expected U.S. jobs growth in February.
The Treasury this week sold three-year and 10-year notes as
well as 30-year bonds, and investors were buying to absorb the
supply, Coard said.
Treasuries were also generally supported by expectations the
Federal Reserve will continue to buy assets over the near term
in an effort to prop up the economy.
The Fed will hold its next policy meeting on Tuesday and
While recent, improved data on the labor market and retail
sales have fueled optimism on economic growth, some investors
say there has not been enough evidence of a recovery to spur Fed
officials to scale back their program of buying $85 billion per
month of mortgage-backed securities and Treasuries.
"The doves on the committee will unequivocally want to see
more progress made on the employment backdrop before they even
contemplate tightening the reins on the latest round" of
quantitative easing, said Michael Cloherty, head of U.S. rates
strategy at RBC Capital Markets in New York.
The Fed will issue its policy statement at the close of the
two-day meeting on Wednesday, and Fed Chairman Ben Bernanke is
expected to conduct a press conference afterwards.
"There won't be any dramatic change," said Richard
Schlanger, portfolio manager at Pioneer Government Income Fund,
at Boston-based Pioneer Investments, a firm with $200 billion in
assets under management. "It's still steady as she goes. The
Fed's bond-buying program will remain in effect in its current
Schlanger said he expected the Fed to acknowledge
improvement in housing, auto sales and job growth.
"But the Fed wants sustained progress," he said. If the
unemployment rate drops because the work force has shrunk, the
Fed wants to know people have left the work force out of choice,
not because they have given up on finding a job, Schlanger said.
For the first time in over a year, the U.S. Treasury
Department on Friday asked institutions holding a large amount
of benchmark Treasury notes to provide information on their
positions -- following a week in which there was unusual
activity in market. The Treasury called for "large position
reports" from entities holding positions in 2 percent notes
maturing in February 2023 of at least $2 billion at the close of
business on March 11.
Traders said the Treasury sought the information on concerns
over disruptions in the market for government securities after a
huge jump in the number of trades that could not be completed,
or fails, earlier this week. Treasury officials said the market
experienced about $80 billion in fails on Monday, five times
more than the average over the last year, according to
Depository Trust and Clearing Corp. data.
Treasury yields are rate benchmarks and the securities serve
as collateral for many outstanding loans in financial markets.
The rate for lending securities in the overnight repurchase,
or repo, market, normally about 20 basis points, fell into
negative territory on Monday due to a shortage of 10-year notes
due February 2023. The reason for the shortage was unclear.
The shortage caused some disruption in the short-term
funding market, according to traders.
"The 10-year had been trading extremely tight in repo for a
while," said John Canavan, fixed income analyst at Stone &
McCarthy Research Associates. "It eased quite a bit this
morning, but the Treasury was trying to get a handle on the
circumstances behind the activity."
Canavan said the Treasury needs to maintain a well
functioning market so Friday's call served both to give the
Treasury information on what was happening, and potentially to
nudge some of the issue loose from whomever might be holding it.
The record-keeping done through the large position reporting
program aims to closely monitor the Treasury securities market
and to stave off manipulation.
The Treasury originally auctioned $24 billion of these notes,
which have a 2 percent coupon, on Feb. 13, and held a second
auction this week, selling $21 billion of notes with the same