Prices for benchmark U.S. Treasurys rose slightly on Friday after weak economic data bolstered the view that policymakers might slow an exit from a bond-buying program designed to boost growth in the world’s biggest economy.
Analysts expect the U.S. Federal Reserve to cut its $ 85 billion per month buying of Treasurys and mortgage-backed securities at its next policy meeting on Sept. 17 and 18.
But mixed data on the health of the U.S. economy have clouded the outlook for the Fed, underscoring the dangers should policymakers pull back on the quantitative easing stimulus program too hard before the economy can stand on its own.
Data on Friday added to that murkiness: Yields hit session lows after data showed that consumer sentiment fell to a five-month low in September as mortgage rates rose and fears over conflict with Syria increased. In addition, retail sales increased a lower-than-expected 0.2 percent last month as Americans cut back on clothing, building materials and sporting goods.
“We started getting some weak economic data,” said Charles Comiskey, head of Treasurys trading at the Bank of Nova Scotia in New York.
The White House said it had not yet made a decision on its pick to lead the Federal Reserve after a Japanese newspaper reported that Lawrence Summers would soon be named. Summers is viewed as more hawkish than Fed Vice Chair Janet Yellen, who is also seen as a leading contender for the job, and is more likely to raise interest rates at a faster pace.
“The fact that the Summers story was discredited by the White House brought people back in to buy the belly of the curve,” Comiskey said. U.S. benchmark 10-year Treasury notes were last up 2/32 in price to yield 2.900 percent, from 2.91 percent late on Thursday. They have fallen from a two-year high of 3.01 percent last Friday.
Thirty-year bonds traded flat in price to yield 3.849 percent. The weakening data comes at an awkward time for the Fed. The U.S. central bank will release the statement from its two-day meeting on Wednesday.
Still, analysts said the Fed would probably still taper—but by how much is the question.
“The bigger event will be next week’s FOMC meeting where we’re looking for the Fed to announce their tapering plans somewhere in the area of $ 10-billion-a-month reduction,” said Sean Murphy, a Treasurys trader at Societe Generale.
The Fed bought $ 3.70 billion in notes due 2019 and 2020 on Friday as part of its ongoing purchase program. Bonds have also gained a bid after the Treasury completed the sale of $ 65 billion in new debt to strong demand, in part because investors unlocked hedges placed ahead of Verizon’s record-breaking $ 49 billion bond sale on Wednesday.
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