Bonds gain as investors eye month-end, long weekend

US 10-YR
US 30-YR

Prices for U.S. Treasurys advanced on Thursday as investors began positioning themselves for the month-end and the long holiday weekend, with underlying worries about a possible military strike against Syria supporting safe-haven purchases.

Treasurys had traded lower in the morning after stronger than expected U.S. economic data, which investors saw as giving the Federal Reserve leeway to begin tapering its massive bond-buying program soon.

But after a sale of seven-year debt in the early afternoon, investors scooped up Treasurys and brought yields back down.

"Once the auction got out of the way we saw some accounts stepping back in, mostly to cover shorts and front-run index buying," said Kim Rupert, managing director of fixed income analysis at Action Economics in San Francisco.

Investors bought as the last trading day of the month on Friday approached. Portfolios managed against benchmark indexes usually buy longer-dated Treasurys around month-end.

"Then of course there are the ever-present threat of Syrian attacks over the weekend," said William O'Donnell, head Treasury strategist at RBS Securities in Stamford, Connecticut.

Worries that Western forces could soon launch a military strike against Syria in response to chemical attack by that nation's government have fueled safe-haven bids for Treasurys this week.

Because Monday is the U.S. Labor Day holiday, markets will be closed, meaning investors holding large positions will be exposed to extra risk should something happen over the long weekend.

The benchmark 10-year Treasury note rose 6/32 in price to yield 2.745 percent on Thursday, from 2.765 percent late on Wednesday.

The 30-year Treasury bond rose 26/32 in price to yield 3.691 percent on Thursday, from 3.736 percent late on Wednesday.

The Treasury also sold $29 billion of seven-year notes on Thursday at a high yield of 2.221 percent.

Despite a relatively low bid-to-cover ratio of 2.43, direct bidding was strong at 22 percent.

As part of its ongoing stimulus program, the Fed bought $1.566 billion in bonds maturing from February 15, 2036 to February 15, 2043 on Thursday.