NEW YORK (MarketWatch) — Treasury prices slid Monday ahead of a slew of data releases that market participants expect to show a revival in springtime growth, after a cold winter that was blamed for temporarily choking off economic improvement.
On deck this week is a report on first-quarter gross-domestic product on Wednesday, which is forecast to show that U.S. growth slowed substantially in the first quarter. But as the winter weather thawed, more recent numbers like an April nonfarm payrolls report on Friday may show a bounce back, with activity that was delayed in the first quarter being pushed to the second quarter.
/quotes/zigman/4868283/delayed 10_YEAR 2.71, +0.05, +1.88% 10-year Treasury yield
"My belief is that we are going to receive a 'data bounce-back' due to weather tainted figures we saw in the last several months," said Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets, in a note to clients.
The 10-year Treasury note (10_YEAR) yield, which rises as prices fall, was up 3.5 basis points on the day at 2.702%. The benchmark yield has largely been trading within a range between 2.60% and 2.80% over the last few months, but a spurt of positive data could prompt the yield to break out of its range higher, according to di Galoma.
The 30-year bond (30_YEAR) yield rose 4.5 basis points to 3.486% and the 5-year note (5_YEAR) yield was up 2 basis points at 1.748%.
Treasurys mostly recovered from morning losses as stocks began selling off mid-day, but the fixed-income market once again turned lower, finishing the session near their intraday lows, as equities recovered to finish the day mostly higher .
"It's more of a stocks story," said Michael Pond, head of global inflation-linked research at Barclays.
Treasury losses had accelerated Monday morning after data showed pending home sales rose for the first time in nine months. An index kept by the National Association of Realtors rose by 3.4% in March to 97.4, up from 94.2 in February.
The surge in economic releases this week is thought to inform the market on when the Federal Reserve may begin raising its key lending rate, which could bring Treasury yields higher along with it. The central bank has said it will look at a number of indicators about the labor market's health and the level of inflation as it decides when the pace of economic growth justifies raising rates.
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Since the Fed began shifting the market's focus toward its guidance on the future path of the fed funds rate, investors have tended to price in earlier rate hikes as the economy improves, and push back expectations amid soft numbers.
"Volatility is apt to increase when economic data of interest to the Fed and markets point to potential changes in the policy outlook. Nevertheless, volatility will likely remain contained by very powerful short- and long-run forces related to the economic outlook," said Tony Crescenzi, market strategist and portfolio manager at Pimco, in a note to clients. He added that because the policy rate is likely to remain below the long-term normal in this economic cycle, investors shouldn't take a "sky is falling approach" of worrying too much about rate hikes.
Treasurys prices rose for four sessions last week as investors flocked to the safety of U.S. government debt amid fears of escalating violence between Ukraine and Russia. On Sunday, pro-Russia rebels in eastern Ukraine publicly showed western military observers who they had taken hostage. Meanwhile, the U.S. imposed new sanctions on Russia.
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