Bonds Climb on Renewed Recession Talk

U.S. Treasurys surged on Wednesday as investors raised their bets on the likelihood of recession and interest rate cuts after a survey showed the manufacturing sector contracted in December.

The bond market traded steady at higher levels on Wednesday afternoon after minutes from the Federal Reserve's Dec. 11 policy meeting showed some Fed officials believed "substantial" easing might be necessary, but noted financial conditions could improve quickly to make a reversal of cuts appropriate.

"I think ultimately it is bullish for bonds but I am surprised by the level of disconnect from the Fed members," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co. in Seattle.

Benchmark 10-year notes were trading 25/32 higher in price for a yield of 3.94 percent from 4.03 percent late Monday, while 2-year notes rose 9/32 for a yield of 2.91 percent from 3.06 percent.

Markets were closed on Tuesday for New Year's Day.