By Dow Jones Business News, October 25, 2013, 09:25:00 AM EDT
By Min Zeng
Prices of Treasury bonds strengthened Friday as a mixed durable goods report raised concerns over the economic outlook
and lifted demand for safe assets.
Durable goods posted a bigger than forecast 3.7% rise in September, but it was driven by a surge in aircraft orders
that masked a drop in demand for other expensive factory goods in September. Excluding transportation equipment,
durable-goods orders fell 0.1% last month--the third straight month of declines in such orders.
The report showed companies cut spending leading up to the multiweek government shutdown this month. Investors and
analysts warned the closure likely dent consumer and business spending this quarter. Big banks such as Goldman Sachs
Group Inc. ( GS ) and Morgan Stanley (MS) bet the muddy growth outlook would convince the Federal Reserve to keep buying
bonds at $85 billion per month through the end of this year to support the economy.
"The weak tone in investment intentions is expected to persist in the coming months as the fallout from the uncertain
political and fiscal environment continue to impair business investment and hiring decisions," said Millan Mulraine,
director of U.S. research and strategy at TD Securities.
In recent trading, the benchmark 10-year Treasury note was 2/32 higher, yielding 2.512%, according to Tradeweb. Bond
prices rise when their yields fall.
As expectations are growing that the Fed won't pull back from its monetary stimulus until early next year, buyers have
scooped up Treasury bonds again having shedding exposure in the summer.
Fed policy makers will make an interest-rate decision next week at their monetary policy meeting and many investors
expect the central bank to hold its bond-buying program steady and continue to monitor economic data.
The U.S. fiscal impasse also clouded the growth outlook. Even as a last-minute deal was reached last week to reopen
the federal government and raise the debt ceiling, budget negotiations will come again in early 2014 and some investors
are concerned that the brinkmanship earlier this month might return.
The 10-year yield jumped from 1.61% at the start of May and briefly topped 3% in early September. Since then, the
yield has moved lower, and earlier this week it hit a three-month low of 2.469%.
Some traders expect the yield could fall to 2.4% or even 2.25% in coming months. But some others said the yield's
further decline faces resistance around 2.45%--a level that could encourage profit-taking in bonds.
Write to Min Zeng at email@example.com
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