Bonds

US bonds keep gains, yields lower after Fed taper

Reuters with CNBC.com
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Treasurys


U.S. Treasury yields fell on Wednesday in choppy trading after data showed the world's largest economy grew much more weakly than expected in the first quarter, offsetting a report that showed private sector employment increased this month.

As expected, the Federal Reserve tapered its massive bond buying by $10 billion, with the decision coming in the wake of poor U.S. growth data.

Figures from the U.S. Commerce Department showed GDP for the first three months of the year expanded at just a 0.1 percent annual rate, the slowest since the fourth quarter of 2012, weighed down by the cold weather. The market was expecting a rise of 1.2 percent.

"We are all told in advance to look at GDP with extreme caution because of the weather, but the market doesn't seem to have done that,'' said David Keeble, global head of interest rate strategy at Credit Agricole in New York.

"The consumption numbers inside the GDP report weren't bad, so it wasn't a disaster. I think pre-positioning, the market was short, and the data sparked a little squaring than conviction-buying.''

Prior to the GDP data, a separate report by payroll processor ADP showed U.S. private employers added 220,000 workers in April, the highest number since November. The ADP figure also came in above analysts' expectations.

Traders work on the floor of the New York Stock Exchange September 17, 2008 in New York City. The Dow Jones Industrial Average closed down 449 points today despite American International Group, Inc. (AIG) $85 billion government bailout.
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At a briefing on Wednesday over the government's debt issuance plans, a Treasury official told reporters the United States will reduce auction sizes for 2-year and 3-year notes by $1 billion in each month over the coming three months.

Washington ran up huge debts in the wake of the 2007-09 recession as unemployment benefits soared and the government pumped vast sums into economic stimulus programs.

But over the last year, as the economy has firmed, rising tax receipts have sharply narrowed the deficit and the Treasury is reacting by adjusting the sizes of its debt auctions.

The benchmark 10-year U.S. Treasury note was 11/32 higher in price, with yields falling to session lows near 2.65 percent, compared with 2.69 percent late Tuesday.

Why investors keep buying expensive bonds

"We're stuck in this 2.60-2.80 percent range in the 10-year the last four months,'' said Keeble. He thinks that the 10-year yield would hit 2.80 percent.

"Once we hit that, then I think we're going to explode higher, but it does need a payroll number.''

A Reuters poll showed economist expect the U.S. economy to have created 210,000 jobs in March. The U.S. non-farm payrolls report is due out on Friday.

Prices of 30-year Treasury bonds edged up 15/32 to yield 3.46 percent, little changed from that of the previous session. U.S. 30-year yields hit the day's trough of 3.47 percent after the GDP numbers.

The , meanwhile, rose 8/32, yielding 1.69 percent. This tenor—the so-called belly of the curve— had led the sell-off the past few sessions.

—By Reuters, with CNBC.com