US Treasuries rose after a report showed US economic growth slowed in the second quarter, boosting expectations the Federal Reserve will cut interest rates another half percentage point this year.
"The economy is still weak, which will warrant a quarter-point rate cut in August and another in October," said Eric Cheung, who helps manage US$8 billion at Wilmington Trust Corp.
Thirty-year bonds rose 11/32, or US$3.44 per US$1,000 face amount, to 97 14/32, as yield fell 1 basis point to 5.55 percent.
Bond yields have dropped 21 basis points this month. Two-year note yields fell to their lowest level since October 1998.
Treasuries were buoyed by a report showing the economy grew at its slowest pace in eight years. Investors this week bought bonds and notes as US stocks and emerging market debt dropped.
Argentina, whose credit rating was lowered yesterday on concern it may default on US$130 billion of debt, dragged South American bond markets lower.
The US economy grew at a 0.7 percent annual rate in the second quarter, the Commerce Department said, compared with a 1 percent gain expected by economists in a Bloomberg News survey.
The GDP report's price deflator, a measure of inflation, rose at a 2.3 percent annual pace, compared with 3.3 percent in the first quarter.
Slow growth and tame inflation "leave the door open for an additional 50 basis points of rate cuts, and the possibility of more aggressive action if the economy fails to rebound," said Douglas Porter, an economist at BMO Nesbitt Burns in Toronto.
The Fed has cut its target for overnight bank loans, or federal funds, 2 3/4 percentage points to 3.75 percent.
The implied yield on the August fed funds futures contract, a measure of expectations for the central bank's target rate, fell 1.5 basis points to 3.655 percent, suggesting that traders fully expect a 25 basis-point rate cut on Aug. 21 when policymakers next meet.
The implied yield on the October contract, now at 3.405 percent, would have to fall to 3.27 percent to show that traders expect another quarter point cut.
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