By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices turned up slightly on Thursday, keeping benchmark 10-year yields around 1.5%, after a pair of weak U.S. economic reports.
Yields on 10-year notes 10_YEAR -0.07% , which move inversely to prices, turned down 1 basis point to 1.49%.
A basis point is one one-hundredth of a percentage point.
Five-year-note yields 5_YEAR -1.48% declined 1 basis point to 0.6%, after setting new lows on Monday.
Yields on 30-year bonds 30_YEAR -0.39% slipped 1 basis point to 2.59%.
Earlier this week, they closed at their lowest level since June 1, but remain above their record low of 2.505% set in December 2008.
The Philadelphia Federal Reserve Bank said its index of factory activity improved modestly to negative 12.9 in July from negative 16.6 in June. See story on Philly Fed.
Also, a private index showed sales of existing homes dropped in June to a slower pace than economists expected. Read more on home sales.
Affirming the narrative
“Collectively, these reports affirm the narrative of slowing economic-growth momentum,” said Millan Mulraine, an economic strategist at TD Securities. As for how the Federal Reserve may view the data, “the odds of further policy action being taken in the near-term have clearly risen.”
Treasurys pared small losses after the Labor Department said 386,000 Americans sought first-time claims for unemployment benefits last week. Read story on jobless claims.
“The volatility in initial jobless claims over the last two weeks is due to seasonal adjustment difficulties related to summer factory-retooling shutdowns, which have not followed the usual pattern this year,” said economists at RDQ Economics. “This report does not suggest that there was a significant change in the pace of job losses between the two months.”
Treasury yields touched record lows earlier this week, but have risen modestly as Federal Reserve Chairman Ben Bernanke’s testimony left many traders convinced that the central bank will ease policy further, even though Bernanke gave no direct indications of when or what form. Read more on Treasurys, Bernanke.
“The market continues to act like a Super Ball bouncing inside a really tiny squash court – like really tiny,” bond strategists at CRT Capital Group wrote in a note. Super Balls would “bounce a lot, more or less in random ways, and ultimately settle down into a random, but less exciting, bouncy range, finally stopping altogether. Isn’t this a bit like the bond market?”
TIPS Auction
Also, the Treasury Department will auction $15 billion in 10-year inflation-indexed debt at negative yields for the fourth straight time. See recent Treasury auction results.
Treasury Inflation Protected Securities pay investors a coupon plus the rate of inflation determined by a government index. When the rate of inflation is expected to be larger than the yield on regular Treasurys (which are near all-time lows), TIPS price at negative levels.
Despite a negative yield, demand should be decent, analysts said. Drought conditions pushing up food prices and rising oil prices point to inflation risks on the horizon.
Deborah Levine is a MarketWatch reporter, based in New York.
