U.S. bonds rise on weak economy

By Ellen Freilich

NEW YORK (BestGrowthStock) – U.S. Treasuries advanced on Tuesday, sending two-year yields to yet another record low, as another sharp drop in home sales appeared to confirm investor fears the economic recovery was dying on the vine.

Sales of previously occupied U.S. homes fell 27.2 percent in July, accelerating an overnight bond-market rally fueled by stock market losses and worries about the global economy.

Fears about the economic outlook sent investors hunting for safe returns in a period of tentative growth.

The “aggressive” bid for the Treasury’s two-year note auction exemplified this pursuit, said Thomas Simons, money market economist at Jefferies & Co.

“Sentiment continues to build for an even more negative economic outlook and expectations for Fed action in the next year have never been lower,” Simons said.

Though the two-year notes offered a 3/8 percent coupon, less than the 5/8 percent coupon offered in the two prior auctions, demand for front-end Treasuries remained strong.

“Aggressive bidding for a 0-3/8 percent coupon may seem strange, but this is the new reality,” Simons said.

The worse-than-expected homes sales report drew out safe-haven flows that gave Treasuries another strong run, said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

The gains pushed benchmark 10-year notes up about a point on the day, leaving their yields at 2.50 percent in mid-afternoon trade.

Earlier gains had pushed yields down as far as 2.47 percent, the lowest 10-year yield since March 2009.

The brief foray below 2.50 percent triggered a bit of expected profit-taking.

“A lot of times the market will do that. It will just kind of penetrate for a bit, test the waters, see some profit taking and then wait for another day,” Rupert said.

The 30-year long bond rose more than two points on the day, later pulling back slightly from its peak to stand 1-24/32 higher on the day, yielding 3.57 percent, as stocks shaved their worst losses. Long bond yields fell as far as 3.54 percent, their lowest since early April 2009.

(Additional reporting by Burton Frierson; Editing by Diane Craft)

U.S. bonds rise on weak economy