Cantor Fitzgerald

George Goncalves Comments: Bonds Jump On Stock Sell-Off - Reuters

Reuters, October 1, 2009

U.S. Treasury prices jumped on Thursday as a stocks sell-off and worries over an economic recovery intensified appetite for low-risk government bonds on the first day of the new quarter.

Benchmark yields slipped to their lowest since late May as a fresh batch of data on jobs, consumers and manufacturing stoked concerns that recent signs of economic revival could be short-lived.

Short-dated debt and rates futures rose on expectations the Federal Reserve will keep interest rates near zero and leave other aspects of its accommodative policies intact, at least until the second half of 2010, analysts said.

"As the effect from the government's stimulus fades, you are going to see more mixed economic signals," said George Goncalves, head of fixed income rates strategy at Cantor Fitzgerald in New York. "The sell-off in stocks is compounding the runup in bonds."

Bonds' rally was restrained in advance of the Treasury Department's announcement of next week's long-dated supply. Analysts forecast it will a combined $77 billion in three-year, 10-year and 30-year regular debt, as well as 10-year Treasury Inflation-Protected Securities, analysts said.

The price of benchmark 10-year Treasury notes US10YT=RR, traded up 15/32 at 103-4/32.

The 10-year bond yield, which moves inversely to price, was at 3.25 percent, down from 3.30 percent late Wednesday. It was the lowest since it hit an intraday low of 3.15 percent on May 21, according to Reuters data.

Major U.S. stock indexes .DJI .SPX .IXIC were down more than 1 percent.