Bonds Rise on Disappointing Data, Boston Marathon Explosions

Junk or Jewels? The Lowdown on High-Yield Bonds
Fotopic | Photolibrary | Getty Images

Prices for U.S. Treasurys rose on Monday on disappointing economic data from the United States and China, with gains accelerating after explosions near the finish line of the Boston Marathon fueled a bid for safety.

The explosions struck late in the day, prompting a rise in 30-year bonds above one full point.

Witnesses reported two explosions, with Boston police reporting at least two dead and 23 injured.

"Stocks sold off on the news and we followed," said Ira Jersey, interest rate strategist at Credit Suisse in New York.

The gains extended last week's rally, with benchmark yields touching the lowest in over a week.

U.S. data on Monday showed the pace of growth in New York state manufacturing slowed more than expected in April, the latest disappointing data point for the world's biggest economy.

The decline in the New York Fed's "Empire State" general business conditions index "suggests that softer global economic outlook is starting to have an effect on U.S. producers in the individual regions," said Amna Asaf, an economist with Capital Economics in Toronto.

China also posted weaker-than-expected data. The recovery in the world's second biggest economy unexpectedly stumbled in the first three months of 2013 with slowing factory output and investment spending forcing analysts to start slashing full-year forecasts despite official insistence the outlook was favorable.

"Today's disappointing data certainly put into question the strength of the Chinese recovery," Flemming J. Nielsen, a senior analyst with Danske Bank, said in a note.

The benchmark 10-year note rose 9/32 in price to yield 1.692 percent from 1.721 percent late Friday.

The 30-year bond last traded up 31/32 in price to yield 2.871 percent from 2.918 percent late Friday.

Also supportive for Treasurys were purchases by the Federal Reserve, which bought $5.6 billion in Treasurys maturing between January 2018 and December 2018. The purchases are part of the accommodative monetary policy the Fed hopes will foster economic growth and limit the negative impact of fiscal restraint.

In the safe-haven universe, investors appeared to favor U.S. Treasurys over gold. Gold dived more than 8 percent on Monday as investors exited the precious metal in droves in search for better returns elsewhere.

"If Cyprus really does begin to sell its gold holdings, what about the other countries needing to raise cash?," said Quincy Krosby, market strategist at Prudential Financial in Newark, referring to a draft plan revealed last week for Cyprus to sell gold as part of its bailout. "Cyprus would be setting a precedent."

The gold sell-off "also fits with the low 10-year yield, suggesting more deflationary, rather than inflationary, environment," she said.

US Treasury Yields

US 10-YR
US 30-YR