US Treasury debt prices rose for a fourth straight session on Friday as nagging concerns about Europe's debt problems and jitters about slowing global growth stoked demand for low-risk government debt.
Benchmark yields were on track to fall 6 basis points for the week, retracing about 25 per cent of last week's spike, which was the biggest one-week rise since late June 2011.
The bulk of Friday's Treasuries buying was tied to short-covering as traders reduced their bets against US government debt in case of negative fiscal news from Europe and the Middle East over the weekend, traders and investors said.
"There's a little more concern about Europe. The market has retraced from its recent high yields. It has found some footing here," said Sean Murphy, a Treasury trader at SG Americas Securities in New York. After Greece clinched its debt restructure earlier this month in a bid to avert a messy default, traders began speculating whether Portugal and Spain would need bailouts if their governments fail to reduce their spending and debt loads.
The Eurozone's festering debt situation has been mitigated by an improving outlook on the United States, which the Federal Reserve acknowledged at its policy meeting last week.
The Fed's modest upgrade of its view of the US economy was one of the catalysts that caused last week's sell-off, catapulting longer-dated Treasuries yield to four-and-a-half-month highs. US long-term government bond funds saw a $1.01 billion drop in assets, the biggest one-week outflow in at least five years, data firm EPFR said.
The swift rise in yields breached 200-day moving averages of medium- and long-dated maturities, sparking a debate whether the Treasuries market is at the precipice of a prolonged decline.
But the optimism on the US economy was tempered last week after a mixed bag of data that challenged the notion that the struggling housing sector might be poised for a rebound.
On Friday, the government reported new home sales unexpectedly fell 1.6 per cent in February, while prices rose to their highest in eight months.
On Thursday, surprisingly weak business readings in Europe and China also undermined investor sentiment and spurred selling in stocks and other growth-oriented investments, analysts said.
The Federal Reserve's ongoing purchases of long-dated Treasuries, as a part of its $400 billion (Dh1.47 trillion) "Operation Twist" bond programme, should help stabilise yields at these higher levels, fund managers said on Friday.
"We have created a new range," said Mike Mata, who oversees $24 billion in bonds at ING Investment Management in Atlanta. "A lot of the tail risk from Europe has been priced out."
A number of analysts and investors said the 10-year yield would trade in a range of 2.10 to 2.40 per cent, about 25 basis points higher than previous trading range.
HIGHER levels seen
The revived appetite for US Treasuries bodes favourably for the $99 billion (Dh364 billion) in coupon debt supply this week and the trend is temporarily quelling talk of a dire future for bonds.
Bill Gross, who manages the world's biggest fund at Pacific Investment Management Company (Pimco), said on Friday via Twitter the bond bull market "may be dead", but a bear market "remains in the distance".
The benchmark 10-year US Treasury note gained 12/32 in price to 97-28/32 to yield 2.239 per cent, down 4 basis points from Thursday and down 6 basis points on the week.
The 10-year yield was above its 200-day moving average of 2.2243 per cent but below its four-and-a-half month peak of 2.399 per cent set on Tuesday, according to Tradeweb.
The 30-year bond shot up 29/32 in price at 96-7/32 for a yield of 3.31 per cent, down 5 basis points on the day and 9 basis points on the week.