US Bond Prices Gain as Cyprus Fears Remain

Junk or Jewels? The Lowdown on High-Yield Bonds
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U.S. Treasuries were firm on Wednesday, as worries about the ramifications from a rescue deal for Cyprus and weak U.S. consumer sentiment data stirred some concern in markets.

The yield on 10-year Treasurys stood at 1.858 percent, moving lower from Tuesday's U.S. closing levels. The 30-year bond soared by more than a point, to yield 3.087 percent.

Treasuries prices gained on Tuesday despite a rise in stocks because the Cyprus rescue plan, imposing heavy losses on depositors in the country, spurred worries depositors and bond investors may pull money out of some other euro zone countries perceived to be weak, likely to the benefit of Treasuries.

Also helping Treasuries was surprisingly weak U.S. consumer sentiment data, although other data pointed to a fairly robust economic picture.

The Conference Board's index of consumer attitudes fell to 59.7 from a downwardly revised 68 in February, sharply below economists' expectations of 68. February was originally reported as 69.6.

A likely culprit was the $85 billion in automatic government spending cuts known as the sequester, which was triggered at the beginning of the month when politicians failed to reach an agreement on a new deal to cut deficits.

"The data showed the spending cuts are hurting consumer sentiment. Considering the impact of spending cuts, there's downside risks to economic data in coming months. We think the 10-year yield will fall to around 1.8 percent," said Shinichiro Kadota, fixed income analyst at Barclays.

The soft consumer data helped Treasuries recover losses triggered by upbeat manufacturing and housing data. Durable goods orders rose 5.7 percent in February, beating expectations.

The S&P/Case Shiller house price index rose 8.1 percent in January from a year ago, its biggest rise since June 2006.

The U.S. bond market will close at 2 p.m. on Thursday and shut for the Good Friday holiday.

Traders expect Wednesday's new five-year notes to yield 0.80 percent, around 2 basis points higher than where debt was trading on Tuesday.

The U.S. Federal Reserve bought $3.142 billion in Treasuries from 2020 to 2023 on Tuesday, which was part of its ongoing bond purchases in a bid to hold down long-term interest rates to help the economy.

It will buy between $1.25 billion and $1.75 billion in bonds due between 2036 and 2043 on Wednesday.