By Ellie Ismailidou, MarketWatch
The Treasury market started the shortened trading week pushed
higher by new worries out of Europe and pulled lower by a series of
economic reports that suggested that U.S. economic growth is
picking up.
U.S. house prices rose 0.9% in March,
(http://www.marketwatch.com/story/us-house-prices-climb-09-in-march-2015-05-26)
according to the S&P/Case-Shiller 20-city composite index,
while new-home sales bounced back in April
(http://www.marketwatch.com/story/sales-of-new-homes-in-us-climb-68-in-april-2015-05-26)
a sharp drop in March that likely was in part tied to poor
weather.
Also, consumer confidence edged higher
(http://www.marketwatch.com/story/consumer-confidence-edges-higher-in-may-2015-05-26),
while the April durable-goods report showed renewed signs of
business investment
(http://www.marketwatch.com/story/signs-of-revival-in-business-investment-seen-in-april-durable-goods-report-2015-05-26).
Usually, strong economic news is bad for bond prices, and the
stronger-than-expected reports did spark some selling. But it
wasn't enough to counter earlier haven-related gains fueled by
renewed fears of a Greek exit from the eurozone, as the
cash-strapped country is facing four IMF loan repayment deadlines
starting June 5 and totalling 1.5 billion euros ($1.63
billion).
On balance, the yield on the 10-year benchmark Treasury note
declined 5.7 basis points to 2.171%, according to data from
Tradeweb. The yield on the two-year note fell 0.9 basis points to
0.635% and the 30-year bond yield declined 6.9 basis point to
2.931%.
Treasury yields fall when prices rise, and vice versa.
Now the market's eyes are on Friday's revised reading of
first-quarter gross domestic product, which economists polled by
Marketwatch expect to turn negative 1% from positive 0.2%. The bond
market is particularly sensitive to the reading given the Federal
Reserve's focus on data in determining when to raise interest rates
for the first time in a decade.
"Everybody pretty much agrees that it will turn negative. The
question is 'how bad was it?'" said Collin Martin, director of
fixed income strategy for the Schwab Center for Financial
Research.
The Fed has attributed the first quarter's soft patch to
transitory factors, most notably bad weather that obstructed
business activity and West Coast port strikes that created a
wider-than-expected trade gap.
Now as second quarter's economic reports warrant some optimism,
market watchers are trying to gauge whether the economy is on a
clear path to recovery or whether first-quarter softness will
persist.
"On Friday, [Fed Chairwoman] Janet Yellen issued a speech that,
to our ears, represented one more step along the path to eventual
rate hikes... Yellen also signaled that she is within the consensus
view on the [committee] that the data will warrant a first rate
hike within the next six months or so," Guy LeBas, chief fixed
income strategist at Janney, said in a note.
Tuesday's economic data seemed to support that view, Schwab's
Martin said, but the question now is whether the improvement will
be sustained.
Also read: Fed's Fischer sees short-term rate at 3.25%-4% in
three to four years
(http://www.marketwatch.com/story/feds-fischer-sees-short-term-rate-at-325-4-in-three-to-four-years-2015-05-26)
Subscribe to WSJ: http://online.wsj.com?mod=djnwires