Treasuries prices rose on Tuesday as weaker-than-expected U.S. retail sales and lower stock prices helped sustain the popularity of safe-haven U.S. government debt.
The S&P 500 index retreated from near a seven-month high after mixed January U.S. retail sales data curbed investors’ appetite for risky assets.
Moody’s ratings cuts on six euro-zone countries late Monday were another bullish influence on Treasuries, as was the Bank of Japan’s decision to boost its asset-buying program by $130 billion to promote growth. The BoJ also set a goal of 1 percent consumer price inflation to pull the economy out of deflation.
“The mixed U.S. retail sales data, Moody’ s European sovereign debt downgrades from yesterday, and today’s slight, risk-off sell-off in other markets fed the rally in U.S. Treasuries,” said Eric Stein, vice president and portfolio manager at Eaton Vance Management in Boston.
U.S. stocks slipped, as did the euro. Spreads on most European sovereign and bank debt modestly widened, Stein noted.
“These are relatively supportive developments from a flight-to-quality perspective,” said Ian Lyngen, government bond strategist at CRT Capital.
Benchmark 10-year Treasuries notes rose 9/32 in price, their yields easing to 1.95 percent from 1.98 percent late on Monday. Thirty-year bond prices rose 21/32 in price, their yields easing to 3.09 percent from 3.12 percent.
The Fed bought $4.952 billion in Treasury coupons with maturities ranging from February 15, 2020 to November 15, 2021.
Fed bond purchases made as part of the central bank’s Operation Twist program have helped to keep yields low even as data reflect some improvement in the economy. The program, which is scheduled to end in June, involves buying longer-dated debt to try to lower mortgage costs, and funding those purchases through sales of shorter-dated notes.
GREECE’S DEBT CRISIS
The Greek debt epic, despite lawmakers’ approval of severe austerity measures on Sunday, retains themes that are “bullish for the Treasury market,” said Lyngen.
If European Union finance ministers push back ratification of the Greek bailout, that would add uncertainty and be bullish for bonds, he said.
That 10-year yields now trade below Friday’s close despite the weekend vote in Greece argues that the market needs more reassurance besides austerity promises from Greece, Lyngen said.
“Wednesday’s EU finance ministers meeting in Brussels to ratify the bailout is still a risk, and despite the commitment to spending cuts by the current Greek government, it is unclear what happens after April elections (in Greece) if an attempt is made to renegotiate (the bailout pact),” he said.
“Moreover, the background of the slower economic growth implied by deleveraging and austerity remains a ... downward influence in Treasury yields,” he said.
The Greek economy shrank 7 percent year-on-year in the fourth quarter of 2011, the nation’s statistics office said on Tuesday.
Protests and civil unrest associated with the Greek austerity steps and the potential focus on credit risks in Portugal also contributed to the bullish underpinnings for Treasuries,” Lyngen said.
Dozens of buildings were burned, damaged, or looted in Greece on Sunday amid deep anger about the impact of the belt-tightening.
Stuck in its worst recession since the 1970s and with unemployment at record highs, Portugal also has come under the scrutiny of financial markets in recent weeks on concerns it could follow Greece in seeking more rescue funds, or even need to restructure its debts.
Minneapolis Federal Reserve Bank President Narayana Kocherlakota said in an interview with CNBC that recent U.S. economic data made him “a little more optimistic” than he had been and said he sees 2012 U.S. GDP growth approaching 3 percent. His remarks were “not market moving at all,” said Stein.