By Wallace Witkowski and Greg Morcroft, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices rose Friday after data showed the U.S. trade deficit narrowed in April but remained over $50 billion and as markets digested rumors that Spain will ask the European Union for help in bailing out its banks.
While the Commerce Department said the month’s trade gap contracted 4.9% to $50.1 billion, that was still well above the $48 billion level that had been expected by economists surveyed in a MarketWatch poll. U.S. exports weakened in April, the data showed. Read more on the trade deficit.
After the data, the benchmark 10-year Treasury note 10_YEAR -2.01% traded to yield 1.60%, lower by 4 basis points on the session, while the 30-year bond 30_YEAR -1.20% traded to yield 2.71%, a drop of 3 basis points.
Bond prices move inversely to their yields. A basis point is one one-hundredth of a percentage point.
Jitters over Europe in general and Spain in particular also left investors less inclined to put money into riskier assets, with both the U.S. dollar DXY +0.48% and Treasurys moving higher as a result.
Late Thursday, Fitch Ratings cut its issuer default rating on Spain to BBB, downgrading from A previously.
With speculation rife that Spain may ask for financial aid this weekend to help bail out its banks, investors are piling into safer assets, according to David Ader, head of government bond strategy at CRT Capital Group.
“It’s risk-off because, get this, Spain will likely request help for its troubled banks this weekend,” Ader said in a note. “A conference call is expected and those Europeans take their conference calls very seriously.”
Ader said factors behind the risk-off trade include Fitch’s downgrade as well as the likelihood that any bailout package the European Financial Stability Facility could afford will fall short of the mark when stacked up against what Spain’s banks need.
Fixed-income investors also are skittish about economic data due out of China over the weekend, including inflation, industrial production and retail sales for May, as well as monthly trade figures.
A Thursday interest-rate cut by the People’s Bank of China was first embraced by the market, but sentiment soured a bit as analysts, on further reflection, seemed to think that the cut could be telegraphing a warning on the state of conditions in the world’s second-biggest economy. Read more on MarketWatch about reaction to Chinese data
Wallace Witkowski is a MarketWatch news editor in San Francisco.
Greg Morcroft is MarketWatch's financial editor in New York.
