By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices inched lower Thursday after a round of mixed economic data, as the market continues to weigh whether recent weak economic indicators are signs of slowing growth, or simply weather-related effects.
The 10-year note 10_YEAR +0.84% yield, which rises as prices fall, was up 1 basis point at 2.746%, while the 5-year note 5_YEAR +2.43% yield rose 2.5 basis points to 1.536% and the 30-year bond 30_YEAR +0.46% yield rose half a basis point to 3.714%.
Nonetheless, demand for Treasurys due to concerns about emerging markets and political turmoil in Ukraine helped keep a lid on gains in benchmark yields, according to Jack Flaherty, portfolio manager of the GAM Unconstrained Bond Strategy.
Data have come in weaker than expected since the start of the year, pushing the Citi Economic Surprise Index, which measures data relative to forecasts, down to negative territory . That’s prompting questions about whether a slowdown in economic growth underlies data that has otherwise been attributed to cold weather.
“It continues to be something where we’re looking at momentum being pushed out another quarter. The data is reflecting reality, so you definitely have less activity because of that,” said Flaherty.
The Philadelphia Fed’s manufacturing index dropped sharply to negative 6.3 in February from positive 9.4 in January. Wall Street economists had expected a reading of positive 7.3. But another manufacturing index, the Markit Flash PMI index, rose to its highest level in almost four years in February. The index hit 56.7 this month, compared with 53.7 in January. Readings above 50 signal expansion.
Meanwhile, the number of people applying for unemployment benefits fell by 3,000 to 336,000 last week, according to another report. Economists polled by MarketWatch had expected claims of 335,000. Consumer prices rose 0.1% in January, led by higher electricity costs.
The Federal Reserve on Wednesday released the meeting minutes from its last gathering. With some hawkish policy members calling to begin raising rates soon, the Fed could add to its communication about rates, known as forward guidance. Traders who bet on the future path of the funds rate using fed funds futures contracts put a 61% probability of a first rate hike in July of 2015, according to CME Group’s FedWatch tool , up from 58% on Wednesday.
At 1 p.m., the Fed will sell $9 billion of 30-year Treasury inflation-protected securities. Given the underperformance of the 30-year TIPS on the broader TIPS curve, demand may materialize.
Strategists at Nomura Securities wrote: “TIPS, as an asset class, has done reasonably well since the start of the year, but the 30-year TIPS has seen little love. Despite some reversal lately, the relative cheapening of the 30yr TIPS can be observed on almost any metric.”
