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US Treasurys Jump; US Sequester Eyed

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U.S. Treasurys advanced on Friday, lifted by safe-haven buying on the eve of federal spending cuts that could curb U.S. economic growth.

Month-end buying as money managers adjusted their average portfolio duration to meet benchmarks added a bid to the market.

Automatic across-the-board spending cuts, known as sequestration, will be introduced on Friday. Many economists expect those budget cuts may reduce U.S. economic growth by around half a percentage point.

"The risks are to the downside in part from the potential additional fiscal drag from the sequestration," said Michael Pond, head of global inflation-linked research at Barclays Capital, in New York.

The International Monetary Fund said on Thursday it would likely cut its 2013 growth forecasts for the United States by at least a 0.5 percentage point if the cuts are fully implemented. The IMF now projects that the U.S. economy will grow 2 percent this year.

Meanwhile, a top Fed official said the U.S. economy should emerge from the doldrums next year if the Federal Reserve sticks to its super-easy monetary policies, even as he warned that cutting back too early would be a "big mistake."

"I don't think we are anywhere near the end of the program," Chicago Federal Reserve Bank President Charles Evans told reporters after speaking to the CFA Society of Iowa here. Those comments also helped spur Treasuries prices higher

"Even if they come up with an alternative, the alternative would not be no cuts, but maybe different cuts. That still means growth will not be as strong as it would have been without the cuts," Pond added.

Bonds were little moved by data on Thursday that showed that U.S. gross domestic product grew 0.1 percent in the fourth quarter of 2012, less than the 0.5 percent growth that the market had expected.

Other data also showed that new claims for unemployment insurance totaled 344,000, fewer than the 360,000 claims economists had forecast.

U.S. Treasurys have largely held in a small range after a dramatic rally on Monday when an Italian election left the country with no clear majority government and renewed concerns about the region's ability to manage its debt problems.

The benchmark 10-year Treasury note's yield traded at around 1.85, edging lower from Thursday's closing levels after rising as high as 2.06 percent on Feb. 14. The debt had traded in a higher yield range of around 1.90 percent to 2.06 percent since late January, before falling as low as 1.84 percent on Monday.

The 30-year bond surged by nearly a full point in early U.S. trading, with its yield moving lower to 3.05.

The government bonds have also been supported by comments from Federal Reserve Chairman Ben Bernanke this week that strongly defended the U.S. central bank's bond purchase program.

(Read More: Why You May Suffer From the 'Sequester Blahs')

The Fed said on Thursday that it will buy $45 billion in Treasurys in March as part of its ongoing purchases, including a purchase on Friday of between $750 million and $1 billion in debt with maturities ranging from Aug. 15, 2023, to Feb. 15, 2031.

On Thursday, the Fed purchased $1.45 billion of bonds with maturities ranging from Feb. 15, 2036, to Aug. 15, 2042.

US Treasury Yields

Symbol
Yield
 
Change
US 1-MO
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US 3-MO
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US 6-MO
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US 1-YR
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US 2-YR
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US 3-YR
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US 5-YR
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US 10-YR
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US 30-YR
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