Treasurys End Lower Despite Rally

NEW YORK -- Treasury prices were modestly lower late Friday but staged a sizable comeback after an overnight plunge that took the 10-year yield to its highest level in almost a year.

At 5 p.m. EDT, the 10-year Treasury note was up $1.56 per $1,000 in face value, or 5/32 point, from its level at 5 p.m. Thursday. Its yield, which moves in the opposite direction, fell to 5.11 percent from 5.13 percent.

The 30-year bond rose 6/32 point. Its yield fell to 5.21 percent from 5.23 percent.

The 2-year note rose 1/32 point. Its yield fell to 5.00 percent from 5.05 percent.

Yields on 3-month Treasury bills were 4.76 percent as the discount rate fell 0.04 percentage point to 4.63 percent.

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Traders said once the 10-year yield briefly hit the 5.25 percent level in Tokyo trading, it was a trigger for buyers to re-enter the market after days of heavy selling. When bond prices fall, yields rise.

"There really wasn't any fundamental news that hit the market," said Michael Pond, Treasurys and inflation linked strategist at Barclays Capital in New York, noting that the only U.S. data of the day — a narrowing of the trade gap in April — was bond-unfriendly news.

"I really think it was just that we hit that key technical level of 5.25 percent and we started to see buyers come back in," Pond said.

The 5.25 percent level on the 10-year yield matched the high point for rates — and low point for prices — of 2006, which is the highest 10-year rate since May 2002. It also is the level where the Federal Reserve has held its target federal funds rate since last June.

David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Conn., said Friday's rally was "an impressive action" and may signal an end, at least to the bout of selling that has hit the market in recent days.

He said "the two-way nature of the price action (Friday) and the good volumes on both sides, really does seem to suggest that the market is trying to establish" itself around these levels.

Ader said that after the broad-based selling from speculative investors such as hedge funds, institutional shops and the mortgage community in recent days, Friday's buying also came from a wide range of investors.

Despite Friday's rebound, Treasurys remain in the biggest bearish run in more than a year.

Much of this week's selling was to do with position adjusting from investors and panic selling from the mortgage community. However, much of the debate among strategists is on where yields should be given developments in the economy.

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