Reuters: Economic News: Bonds fall, set for worst quarter since 2010

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Bonds fall, set for worst quarter since 2010 Mar 30th 2012, 18:46 By Richard Leong NEW YORK | Fri Mar 30, 2012 2:46pm EDT NEW YORK (Reuters) - Government debt prices fell on Friday, marking the end of a rocky first quarter for Treasuries, which are on track for their worst three-month period since the fourth quarter of 2010. An afternoon sell-off led by the 30-year bond, pared earlier gains in reaction to mixed economic data that reduced optimism the U.S. economy is gathering momentum and reinforced the notion that inflation will stay tame and the Federal Reserve might embark on more stimulus. "The market seems to be struggling to hang in here before quarter end," said Sean Murphy, a Treasury trader at SG Americas Securities in New York. The Fed's $400 billion "Operation Twist" has helped support long-dated Treasuries prices as the central bank has been selling its shorter maturities and buying longer-dated issues in the open market in a bid to hold down mortgage rates and long-term borrowing costs to stimulate borrowing and investments. The Fed bought $2.01 billion in Treasuries due in about 24 to 30 years early Friday. The bids for longer-dated bonds faded after the Fed's latest purchase, knocking their prices lower. This bond purchase program, which is slated to finish at the end of June, was not enough to offset the reduced anxiety about the European debt crisis and encouraging figures on U.S. jobs and manufacturing in the first quarter. A less fearful climate led investors to shift money out of cash and Treasuries and into stocks, corporate bonds and other growth-oriented investments. So far in 2012, taxable bond funds saw $59 billion inflows through the week ended March 21, according to the Investment Company Institute. Analysts said a majority of that money went into corporate bond funds. Robust appetite for higher-yielding corporate debt drove the issuance in that sector to a record first quarter in supply, according to IFR, a unit of Thomson Reuters. Barclays Capital's Treasury index was down 1 percent so far in the quarter, which would be the biggest quarterly drop since a 2.63 percent drop in the October-December quarter in 2010. MIXED U.S. DATA News of sluggish income growth kindled worries about the longer-term prospects for U.S. economic health, despite robust consumer spending early in 2012. Government data also showed the underlying inflation trend remained tame despite the surge in gasoline prices, spurring a bid for longer-dated Treasuries. "Stronger spending, while unsustainable, is good for near-term growth. Weaker incomes could suggest a weakening payroll trend and the fact that spending-led growth is unlikely to last as the savings rate declines sharply," said Gennadiy Goldberg, fixed income strategist at 4Cast Ltd in New York. Personal income grew 0.2 percent in February, half the 0.4 percent increase predicted by economists, while personal spending jumped 0.8 percent last month, the biggest monthly increase since July. Other data also portrayed an economy in flux. A industry report showed an unexpected slowdown in factory growth in the upper U.S. Midwest in March, while the Thomson Reuters/University of Michigan survey showed U.S. consumer sentiment rebounded to a 13-month high in late March. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic-consumer spending: link.reuters.com/vem47s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> In early afternoon trading, the benchmark 10-year Treasury note was down 4/32 in price, its yield rising to 2.18 percent, up 2 basis points from late on Thursday. The 10-year yield was on track to rise 30 basis points for the quarter, which would be the biggest quarterly increase since the 78 basis points surge in the last quarter of 2010. It briefly touched a 4-1/2-month high just under 2.40 percent last week. The 30-year bond was down 14/32 in price for a 3.30 percent yield, up 2.5 basis points from late Thursday. For the quarter, the 30-year yield was poised to increase 41 basis points, the largest quarterly rise since the fourth quarter of 2010, when it jumped 65 basis points (Reporting by Richard Leong; Editing by Diane Craft) Link this Share this Digg this Email Reprints

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