WSJ: Treasury Bond Prices Rebound on Caution Over Economic Growth
By Min Zeng
Treasury bond prices strengthened and recouped earlier losses Monday as some investors remain cautious over the economic outlook.
The benchmark 10-year Treasury note was 4/32 higher in recent trade, yielding 1.688%. The yield trades near a four-month low. Bond prices move inversely to their yields.
Demand for the safe-harbor market initially fell after the Group of 20 industrialized and developing countries gave Japan the green light to take aggressive monetary stimulus that has weakened the yen in a bid to boost the economy. []
Treasury prices also lost some ground when Italy ended weeks of limbo and elected a president, fueling a rally in Italy and Spain government bonds and boosting riskier assets.
Investors worried over the growth outlook then moved into the market to take advantage of cheaper prices. Market sentiment switched after Caterpillar Inc.'s first-quarter net profit fell 45% amid a broad-based revenue decline, while the existing home sales in March posted an unexpected decline.
"Caterpillar tends to be a good barometer of overall growth in the economy," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.
The prospects that the Bank of Japan's stimulus would drive Japanese investors, including pension funds and life insurance companies, to buy high-grade fixed income assets overseas also lured in fresh buyers. The 10-year Treasury yield is much higher than the yield of 0.61% on the 10-year Japanese government bond.
"There is still a lot going on favoring Treasurys," said Hicham Hajhamou, director of Treasury trading at Pierpont Securities.
Looming supply will keep the bond market's rebound in check. The Treasury Department is scheduled to sell $99 billion in Treasury notes this week, which includes $35 billion in two-year notes Tuesday, $35 billion in five-year notes Wednesday and $29 billion in seven-year notes Thursday.
Treasury yields have dropped in recent weeks as concerns rose over the pace of the economic recovery in the U.S. following disappointing data on employment, consumer spending and manufacturing.
The 10-year Treasury note's yield has dropped from 2.086% set in March, the peak of this year so far. The yield now trades below 1.76%, where the security ended 2012.
Investors are worried that the growth could lose traction again just like what happened in the past few years, though some analysts argue a recovering housing market would boost growth prospects this year.
Bond yields would rise again if upcoming data renew optimism over the growth outlook. In this case, the Federal Reserve could start pulling back on buying Treasury bonds before the end of this year, which would remove a main support for bond bulls in holding down bond yields.
