NEW YORK (MarketWatch) — Treasury prices turned up on Thursday, pushing yields toward record lows in some cases, after the Philadelphia Federal Reserve’s index showed an unexpected contraction in manufacturing in the region this month.
Bonds were supported before the report as rising borrowing costs in Spain added to concerns about bank capitalization and Greece’s future in the euro.
Yields on 10-year notes 10_YEAR -0.68% , which move inversely to prices, fell 2 basis points to 1.75%. A basis point is one one-hundredth of a percentage point.
At the beginning of the week, they fell to levels not seen since October and not much above their all-time low of 1.71%.
Thirty-year bond yields 30_YEAR -1.24% declined 3 basis points to 2.87%, after recently closing at their lowest level since mid-January.
Yields on 5-year notes 5_YEAR -0.27% were little changed at 0.75%, not much above their all-time lows.
Traders seem reluctant to let Treasury yields break to lower levels even as negative news about Europe, banks and Greece keeps investors shifting away from riskier assets. But technical analysis shows the market is quite a distance from a real reversal to higher yields.
“Bull trends in safe-haven assets are still in place so there is no evidence yet that a reversal in safe-haven inflows is upon us,” said Bill O’Donnell, head of Treasury strategy at RBS Securities. “But trend momentum studies are all generally overbought in safe-haven assets, as you’d expect given the moves over the last few months.”
Ten-year yields would have to break above 1.88% for a reversal to be convincing, he said.
“We’re still some distance away from bearish triggers in Treasurys,” he said.
Bonds turned up after the Philly Fed index fell to -5.8 from 8.5 in April, while economists polled by MarketWatch had expected the index to increase to 10.0. Reading below zero indicate that more companies are contracting instead of expanding. See more on Philly Red.
While the data contrasts with other readings on the sector, it’s “a weak report that plays into the ongoing concerns about the pace of the U.S. recovery,” said Ian Lyngen, senior government bond strategist at CRt Capital Group. Treasurys are ” taking only modest bullish direction from the data.”
Earlier Thursday, Spain sold 2.494 billion euros in shorter-dated bonds, but yields lurched again higher as investors worry about other fiscally-challenged members of the euro zone. See story on Spain’s bond sale.
Separately, a Fitch Ratings report said 29 global banks might need to raise 23% more capital to meet new capital rules under the Basel III plan. Read more on bank capital needs.
A slight rally in bonds was capped by data showing 370,000 first-time applicants for jobless claims last week, unchanged from the prior week, which pulled U.S. stock futures out of negative territory. See story on jobless claims.
Treasury auctions
At 11 a.m. Eastern time, the government will announce how much debt it will auction next week.
At 1 p.m. Eastern, the government Treasury Department will sell $13 billion in 10-year Treasury Inflation Protected Securities, known as TIPS.
The auction is a reopening, meaning the debt sold will carry the same coupon and maturity as the originally issued debt, sold in January.
At the last six reopening of 10-year TIPS – most of which were for smaller amounts – bidders offered to buy an average of 2.77 times the amount of debt sold, according to CRT.
Indirect bidders, a group which includes foreign central banks, bought 40.1% of sales, on average.
Direct bidders, a group which includes domestic money managers, purchased another 13.5% on average.
Deborah Levine is a MarketWatch reporter, based in New York.
