U.S. Government Bonds Strengthen on Soft Economic Data

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds strengthened Tuesday as investors responded to a batch of soft economic data.

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In recent trading, the yield on the 10-year Treasury note was 2.266%, according to Tradeweb, compared with 2.292% Monday. Yields fall as bond prices rise.

Traders bought government debt after Institute for Supply Management said its index of U.S. manufacturing activity fell to 56.3 in July from 57.8 in June. Reports from U.S. auto makers also showed sharply lower sales in July, while new data showed that the Federal Reserve's preferred measure of inflation, the price index for personal-consumption expenditures, slipped in June on an annual basis to 1.4% from 1.5% in May.

Taken together, the data was fairly disappointing, analysts said. That helped support bonds, which do well in environments of weak economic growth and soft inflation, as higher inflation erodes the purchasing power of their fixed returns.

Prices of Treasurys had fallen earlier in the trading session, with the 10-year yield rising as high as 2.321%.

Analysts said one factor driving trading was Wednesday's refunding announcement from the Treasury Department.

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Some traders are preparing for the possibility that the Treasury Department could announce plans to issue new forms of long-term debt, such as 50-year bonds, in anticipation of the Federal Reserve starting to scale back its reinvestment program, said Gennadiy Goldberg, U.S. rates strategist, at TD Securities in New York.

That would likely put pressure on outstanding bonds with longer maturities. Still, others, including TD Securities, expect the Treasury Department to focus more on short-term borrowing, which would be a favorable outcome for longer-term bonds.

Data on core inflation, which excludes food and energy products, was also something of a bright spot amid the lackluster economic reports.

While headline inflation fell on an annual basis, core inflation remained flat at 1.5%, a development that could make people "think that we've bottomed here," Mr. Goldberg said.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

August 01, 2017 11:34 ET (15:34 GMT)