Bonds News

TREASURIES-Bonds rise as high yields attract bidders

NEW YORK, July 9 (Reuters) - Treasury prices edged up on Monday in thin trade, as some investors were drawn by yields near two-week highs in the aftermath of U.S. government bonds’ selloff on a robust jobs report on Friday.

Bond investors are betting that the Federal Reserve is likely to hold interest rates unchanged through year end, but some want to buy Treasuries at current levels on the view that woes in the subprime mortgage debt sector and housing market will ultimately weaken the economy, analysts said.

The benchmark 10-year note yield’s rise to 5.20 percent after Friday’s strong jobs report “has a lot to do with the bid,” on Monday, said Jim Caron, co-head of global rates research with Morgan Stanley in New York.

In addition, investors are mulling the extent to which the subprime mortgage debt market has deteriorated over the past month and are anticipating signs that has taken a toll on consumers in June economic reports, Caron added.

The 5.20 percent area remained a key level on Monday, with 5.25 percent marking the top and 5 percent the bottom of the 10-year note’s recent yield range, analysts said.

The 10-year note's price rose 6/32 for a yield of 5.16 percent US10YT=RR, versus 5.19 percent late on Friday. Bond yields and prices move inversely.

T.J. Marta, fixed income strategist with Royal Bank of Canada Capital Markets in New York said that a Credit Suisse note on subprime losses, reported by Bloomberg News, was lending support to Treasuries.

However, strategists emphasised that thin summer season trading volume could be exaggerating bond moves.

In a quiet session, U.S. government bond investors kept a watch on stock markets in case a safe-haven bid for Treasuries out of riskier assets should develop and also awaited a speech by Federal Reserve Chairman Ben Bernanke on inflation scheduled for Tuesday and some potentially market-moving data later in the week.

The next main focus for the market is likely to be the Fed Chairman’s scheduled appearance on Tuesday, analysts said.

After that, “The trade deficit report, retail sales and oil prices are the three big items that will influence the Treasury market most this week,” which will confirm or deny investors’ impression that the economy is growing more strongly than anticipated, said Doug Roberts, chief investment strategist with Channel Capital Research in Shrewsbury, New Jersey.

The May trade deficit, a guide to the pace of economic growth in the second quarter, is due on Thursday. June retail sales follow on Friday. Crude oil in New York is trading near 10-month highs around $72 per barrel.

Friday’s jobs data was seen as the exclamation point at the end of a string of recent data suggesting the economy is growing at a faster clip than originally forecast. Investors have now pretty much discounted any chance the Fed will cut the current fed funds rate of 5.25 percent anytime soon in an effort to spur growth.

The two-year note -- which responds closely to expectations for central bank interest rate moves -- traded up 1/32 in price for a yield of 4.98 percent US2YT=RR, compared with 4.99 percent late on Friday.