Bonds jump after dismal jobless, factory data

By Richard Leong

NEW YORK (BestGrowthStock) – U.S. Treasuries prices rose on Thursday, with two-year yields hitting record lows after dismal factory and jobless claims data signaled new trouble for the economy and the likelihood of prolonged low interest rates.

Increased anxiety over a double-dip recession pummeled Wall Street and triggered fresh safe-haven buying of long-dated cash bonds, futures and exchange-traded funds.

“The economy broadly is in a risky area. The risk of double-dip (recession) has increased,” said Jim Baird, chief investment strategist at Plante Moran Financial Advisors in Kalamazoo, Michigan. “Investors are trimming their exposure to risky assets and moving incrementally in Treasuries.”

The U.S. Federal Reserve joined the buying spree, having restarted its bond purchase program this week in an effort to lower long-term interest rates and stimulate borrowing and investments. It bought $3.61 billion of Treasuries maturing from November 2016 to May 2017.

St. Louis Fed President James Bullard said the U.S. central bank may need to enlarge its bond purchases if the economic recovery slows further.

Given the intense appetite for Treasuries, the government said it would sell a combined $109 billion in coupon-bearing notes next week.

The government, while it again trimmed the auction sizes of two- and five-year notes, still faces a huge deficit in coming years. The budget gap would grow if the economy continues to soften and tax receipts were to fall.

The Congressional Budget Office said the U.S. budget deficit will hit $1.342 trillion this year, down slightly from its March projection of $1.368 trillion.

Long-dated debt led the rally, with the yield on 30-year bond hitting a fresh 16-month low of 3.622 percent and the 10-year note yield posting a new 17-month low at 2.557 percent. The two-year yield touched an all-time low of 0.475 percent.

ETFS, ULTRA BOND FUTURES

Investors looked outside of cash 30-year bonds and 30-year futures for assets that generate safe, long-term income in the aftermath of data that showed jobless claims hitting a nine-month high and a surprise drop in regional factory index from the Philadelphia Fed.

“Rates are going to be low for quite some time. This promotes yield chasing,” said Jim Lee, head of short-term markets and futures strategy at RBS Securities in Stamford, Connecticut.

A huge block trade of Dec CBOT ultra T-bond futures underscored the groundswell for long-dated investments. The sale totaled 9,000 contracts with a total face value of $900 million. This was one of the largest trades since the CBOT launched these futures in January, according to analysts.

These ultra bond futures have a duration of roughly 18 years, longer than the 15-year duration on a T-bond contract, analysts said.

The demand for long bonds also spread to exchange-traded funds, analysts said.

There was an upswing in trading in an ETF benchmarked against the Barclays index of U.S. Treasuries with maturities of 20 years or longer.

The price of the Barclays iShare ETFs last traded at 106.16, after touching 106.61 — the highest level since March 18, 2009.

(Additional reporting by Emily Flitter; Editing by James Dalgleish)

Bonds jump after dismal jobless, factory data