US Treasuries gained for a fourth week in five as weak economic reports and increased terrorism fueled concern that growth won't pick up soon.
Demand for the relative safety of Treasuries was buoyed today as the University of Michigan said its October index of consumer sentiment held near an eight-year low, rising to 82.7 from 81.8 in September. Investors also sought government debt as additional cases of anthrax emerged, raising concern of more terrorist attacks.
"Treasuries are the place to be as who knows what happens over the weekend," said James Rice, a strategist at Stone & Youngberg LLC in San Francisco. "It's hard to foresee any news that would be bad for the bond market," he said.
The University of Michigan report follows other data this week, such as rising joblessness and shrinking manufacturing, that indicates the economy could have fallen into a recession that the Federal Reserve may try to end with more rate cuts, analysts said.
The National Association of Realtors yesterday reported an 11.7 percent drop in September home sales.
The yield on the 5 percent note maturing in August 2011 fell 10 basis points on the week as investors bid up its price. On the day, the note's price rose 6/32, or US$1.88 per US$1,000 face amount, to 103 3/4, the highest level since Oct. 8. The yield on the 5 3/8 percent bond due in February 2031 fell 9 basis points in the week to 5.27 percent, a seven-month low.
Together the week's economic reports boosted expectations the Fed will cut the overnight lending rate between banks by 50 basis points next month to 2 percent, instead of the quarter-point registered in futures markets as of last week. The implied yield on the February fed funds futures contract fell below 2 percent, a record low.
Traders may put more bets on rate cuts next week as reports are expected to show the economy shrank in the third quarter for the first time since March 1993 and 300,000 people lost jobs in October, according to median forecasts of economists polled by Bloomberg News. The National Association of Purchasing Management will probably report manufacturing contracted further.
Even with signs of further economic slowdown, some investors are betting at least 4 percentage points of interest rate cuts by the Federal Reserve and US$100 billion in government spending and tax cuts will boost growth in the first half of next year.
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