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US Treasuries ride weak durables to slim gains
Thu Oct 27, 2005 01:44 PM ET
(Updates prices, adds comments; changes dateline; previous NEW YORK)
By Ros Krasny
CHICAGO, Oct 27 (Reuters) - U.S. Treasury debt prices managed small gains on Thursday, recovering some of the week's huge losses as economic data, including monthly durable goods orders, stirred a few doubts about the U.S. economy.
News that the U.S. Securities and Exchange Commission is investigating General Motors Corp.'s (GM.N: Quote, Profile, Research) accounting triggered flight-to-safety buying.
GM denied talk that swirled in Asia overnight that it could file for Chapter 11 bankruptcy protection, but the company's bonds fell.
The 10-year Treasury note (US10YT=RR: Quote, Profile, Research) rose 4/32 for a yield of 4.57 percent, down from 4.59 percent.
The benchmark note yield flirted with 4.60 percent on Wednesday for the first time since late March but could need fresh bearish input to challenge 4.63 percent.
"Treasuries continue to react minimally in response to data, with questions over the point at which specs cover shorts uppermost in traders' minds," said Alan Ruskin, research director with 4CAST Ltd.
September durable goods orders fell 2.1 percent, more than the 1.1 percent forecast by Wall Street. But the series is notoriously volatile and prone to big revisions.
August orders were revised to a 3.8 percent rise instead of the 3.4 percent gain reported earlier.
"The details of the durable goods orders were pretty good even though the overall number was down," said Patrick Fearon, senior economist at A. G. Edwards and Sons.
Analysts said weak shipments in September could hint at lower-than-expected third-quarter gross domestic product but that high unfilled orders bode well for the fourth quarter.
On net, the report did little to shake views that the Federal Reserve will raise interest rates at its next two meetings and probably in January as well.
Rate futures (EDH6: Quote, Profile, Research) imply a fed funds rate of 4.5 percent by the end of the first quarter of 2006.
The Commerce Department said September new home sales rose 2.1 percent from a downwardly revised August level. Analysts focused on a bulge in the supply of new homes on the market to a 4.9-month stockpile, the highest in nine years.
"New home sales data reveal a rising inventory/sales ratio -- a sign of slowing ahead," economists at Goldman Sachs said in a research note.
Coupled with news of a dip in weekly mortgage applications on Wednesday, some wondered if the gloss is finally coming off the housing market, threatening an economy that has leaned on housing for the past few years.
The next test for Treasuries will be Friday's advance third-quarter economic growth data. Third-quarter growth is forecast to rise by 3.6 percent against 3.3 percent in the second quarter.
The 30-year bond (US30YT=RR: Quote, Profile, Research) rose 7/32 to yield 4.78 percent, down from 4.79 percent.
Five-year Treasury notes (US5YT=RR: Quote, Profile, Research) were up 3/32 at a yield of 4.44 percent, down from 4.46 percent. Two-year note (US2YT=RR: Quote, Profile, Research) yields were at 4.36 percent, down from 4.37 percent.