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Reuters
US Treasuries inch up on slower growth, safety bid
Friday August 27, 1:23 pm ET
By Ros Krasny
(Updates prices, adds comments; changes dateline, previous from NEW YORK)
CHICAGO, Aug 27 (Reuters) - U.S. Treasury prices inched up on Friday as improved consumer sentiment failed to overshadow slower second-quarter growth, while flight-to-safety buying emerged before next week's Republican convention in New York.
U.S. gross domestic product, the broadest measure of the nation's output, expanded at a 2.8 percent annual rate in the second quarter, down from the 3.0 percent pace originally estimated by the Commerce Department.
The revision was in line with Wall Street's median forecast and not as big as some had feared after the record high June trade deficit. Still, GDP growth eased from 4.5 percent in the first quarter and was the slowest since the first quarter of 2003.
"It's a small revision. It does indicate that Q2 was a disappointing quarter. Growth slowed sharply. Consumers became more cautious and our trade deficit ballooned," said Mark Zandi, chief economist at Economy.com.
The benchmark 10-year Treasury note (US10YT=RR) rose 3/32 for a yield of 4.20 percent, down from 4.21 percent late Thursday. Yields are within sight of the four-month low near 4.15 percent from Aug 18.
The 30-year bond (US30YT=RR) rose 5/32 to yield just under 5.00 percent, down from 5.01 percent on Thursday. Long bonds have not held below 5.00 percent since early April.
Five-year notes (US5YT=RR) rose 2/32 to yield 3.40 percent, down from 3.41 percent on Thursday. Two-year notes (US2YT=RR) were steady at a yield of 2.47 percent.
The University of Michigan's final sentiment report for August was revised up to 95.9 from the original 94.0.
Although the revision was unusually large, the final monthly Michigan index has risen from the preliminary number in 10 of the past 11 months.
Traders are already looking a week ahead, to the August payrolls report, for fresh input that could shape the Federal Reserve's monetary policy.
Fed Chairman Alan Greenspan did not address the economy in a speech at Jackson Hole, Wyoming, but warned about the long-term fiscal challenges posed by an aging population.
IMPACT OF OIL SPIKE NOT OVER
Crude oil futures have subsided in the past week from record highs but are still at levels consistent with high prices at the gasoline pump.
"The impact on consumers' spending of the drop in oil prices thus far will be more or less nonexistent," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
On Friday, White House economic adviser Gregory Mankiw said that energy costs were "still too high" and were straining family budgets -- but would not derail the economic expansion.
His comments were similar to those from a number of Fed officials this week.
Short-term rate futures show changes of a 1/4 percentage point September rate increase at 84 percent, little changed on the week.
"The Fed is presently embarked on a journey of measured tightening and the oil price shock is not likely to either accelerate or halt that journey," Paul McCulley, managing director at PIMCO, the world's largest bond fund, said in a report.
Friday's only other indicator, the Economic Cycle Research Institute's weekly leading index, slipped to 131.4 from 131.7 and the index's annualized growth rate stayed flat.
"Evidence of a rebound in growth remains elusive," said Lakshman Achuthan, managing director of ECRI.
