By Dow Jones Business News, October 25, 2013, 04:30:00 PM EDT
--Consumer sentiment hits lowest level in 2013
--Fed expected to keep bond-buying program steady from next week's policy meeting
--Treasury scheduled to sell $96 billion new notes next week
By Min Zeng
U.S. Treasury bonds ended the week on a high note as the latest U.S. data releases raised concerns over economic
growth and bolstered speculation the Federal Reserve would be in no rush to dial back its bond purchases.
In late-afternoon trading, the benchmark 10-year Treasury note was 4/32 higher, yielding 2.505%, according to
Tradeweb. Bond prices rise when their yields fall.
The yield fell by about 0.09 percentage point this week. Treasury bonds have handed investors 0.5% in total return in
October through Thursday, though they still suffered a 1.5% loss so far this year, according to Barclays.
A key boost for bond prices came Friday from a private survey that showed U.S. consumer sentiment this month sank to
73.2 in late October, the lowest level in 2013. It underscores how the federal government shutdown and fiscal impasse
have dented confidence over the economy.
Business spending also retreated. Durable goods posted a bigger-than-forecast 3.7% rise in September, but it was
driven by a surge in aircraft orders. Excluding transportation equipment, durable-goods orders fell 0.1% last month--the
third straight month of declines in such orders.
"The Fed needs to continue to bail out the boat as there is still a storm on the horizon," said Scott Buchta, head of
fixed income strategy at Brean Capital LLC.
Mr. Buchta believes the 10-year yield will fall to 2.25% before the end of December and could drop further to 2.06% if
the economy continues to falter.
Investors and analysts warned the government closure likely dented consumer and business spending this quarter and
maybe even into 2014. A last-minute deal was reached last week to reopen the federal government and suspend the debt
ceiling, but budget negotiations will come again in early 2014, and some investors are concerned that the brinkmanship
"Lawmakers will need to win the heart and minds of consumers, to say nothing of business leaders, in order to help
propel growth higher, which will allow the Fed to begin to stand down," said Adrian Miller, director of fixed-income
strategy at GMP Securities.
Fed policy makers will make an interest-rate decision on Wednesday at the conclusion of a two-day monetary policy
meeting. Many investors expect the central bank to hold its bond-buying program steady and continue to monitor economic
Big banks such as Goldman Sachs Group Inc. and Morgan Stanley believe the muddy growth outlook will convince the Fed
to keep buying bonds at $85 billion a month through the end of this year to support the economy.
As expectations grow that the Fed won't pull back from its monetary stimulus until early next year, buyers have
scooped up Treasury bonds again after having shed exposure during the summer.
The 10-year yield briefly topped 3% in early September--jumping from 1.61% at the start of May--but has since moved
Some observers said a further decline in the yield would face resistance around 2.48%. The level represents 38%
pullback of the yield's rise from the low point to the high point between May and early September, which could encourage
profit-taking in bonds in the short term, they said.
New debt supply could also keep bond-price gains in check.
The Treasury Department is scheduled to sell $96 billion of new notes next week. The supply will include $32 billion
in two-year notes on Monday, $35 billion in five-year notes Tuesday and $29 billion in seven-year notes Wednesday.
COUPON ISSUE PRICE CHANGE YIELD CHANGE
1/4% 2-year 99 29/32 flat 0.303% flat
5/8% 3-Year 100 4/32 up 1/32 0.582% -0.8BP
1 3/8% 5-year 100 14/32 up 4/32 1.280% -2.4BP
2 1/8% 7-Year 100 23/32 up 4/32 1.886% -2.2BP
2 1/2% 10-year 99 30/32 up 4/32 2.505% -1.6BP
3 5/8% 30-year 100 17/32 up 10/32 3.596% -1.7BP
2-10-Yr Yield Spread: +202.2 BPS Vs +221.1 BPS
Write to Min Zeng at email@example.com
(END) Dow Jones Newswires
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