Yields Fall As Mixed Data Complicate Fed Picture

Treasuries rose for a second day after reports showed uneven economic growth, complicating the Federal Reserve’s intention to raise interest rates this year. Thirty-year bonds led the gains as yields close to the highest levels since October reignited demand with the outlook for inflation subdued. Treasuries were supported as reports showed existing-home sales were lower than forecast and Americans’ expectations for the economy slumped in May by the most since October 2013.

“We had poor data today — that’s what’s driving this thing,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “If 10 years get through that 2% level, we could see another leg lower.”

The 10-year yield dropped six basis points, or 0.06 percentage point, to 2.19% at 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The price of the benchmark 2.125% note due in May 2025 rose 1/2, or $ 5 per $ 1,000 face value, to 99-13/32.

Thirty-year-bond yields dropped six basis points to 2.99% after reaching 3.13% last week.

The Fed expects the economy to return to a “moderate pace” of growth after a first-quarter slowdown. Since the last meeting, payrolls figures have improved, while weaker-than- forecast data on manufacturing and retail sales prompted economists to mark down projections for Q2 economic growth.

Contract closings for previously owned homes unexpectedly dropped 3.3%, figures from the National Association of Realtors showed. A measure tracking the economic outlook fell by 6 points to 44 this month, data from the Bloomberg Consumer Comfort Index showed.

As traders rule out the probability of a June rate hike, the odds of a Fed interest-rate increase in December were 56%, according to CME Group Inc. calculations of fed funds futures prices.

“I don’t expect a massive tightening,” said Brian Edmonds, the head of interest-rates trading in New York at Cantor Fitzgerald, one of 22 primary dealers that trade with the Fed. “They will be very cautious. It will probably happen later rather than sooner.”

Traders are skeptical the Fed will raise rates in June as inflation remains benign. Indirect bidders, a group of investors ranging from mutual funds to foreign central banks snapped up the majority of $ 13 billion in 10-year inflation indexed securities auctioned by the Treasury Thursday. The purchase, at 67.1%, was the second highest since 2003.

Treasuries maturing in 10 years or longer bounced back Thursday after losing 4.99% this month, according to Bloomberg U.S. Treasury Bond Index data.

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