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Treasurys rally on weak GDP, jobs

February 29, 2008 | "Associated Press"

Government bonds rise as stocks decline on weak economic growth and a 'pop' in jobless claims.

Treasury prices rallied Thursday after new reports showed the economy barely moved forward at the end of last year and that jobless claims rose last week.
The Commerce Department said gross domestic product, a gauge of economic growth, rose at an annual rate of 0.6% the fourth quarter, weaker than the 0.7% projected by Thomson/IFR. The details of the report showed declining employment, incomes and industrial production at the end of 2007.

Many economists believe GDP figures for the current quarter will be even weaker, with some analysts projecting no growth.

Separately, the Labor Department said the number of people applying for unemployment benefits last week rose by 19,000 to 373,000, marking the highest level since January.

"The pop in U.S. jobless claims in the final week of February is troublesome, though it occurred in the week of the Presidents Day holiday, so we will need a few more weeks of data to assess its significance," said Action Economics.

The two reports intensified concerns about the extent to which the economy is weakening at a time when the credit markets continue to falter and inflation is on the rise. These worries caused losses for stocks and sent money into the low-risk Treasury market.

The benchmark 10-year Treasury note rose 24/32 to 98 with a yield of 3.74%, down from 3.85% late Wednesday, according to BGCantor Market Data.
The 2-year note gained 4/32 to 100 6/32 with a 1.9% yield, down from 2% late Wednesday.

The 30-year long bond rallied 1 28/32 to 97 4/32 with a 4.55% yield, down from 4.66% the day before.

The Treasury Department Thursday afternoon is auctioning $16 billion in new 5-year notes. A Wednesday auction of $26 billion in 2-year notes attracted reasonably strong domestic demand, but the participation by foreign central banks appeared weak.

Continuing declines for the dollar have exacerbated worries about foreign central banks diversifying away from Treasurys, their traditional reserve asset of choice, for instruments denominated in higher yielding currencies like the euro. On Thursday the euro traded above $1.51, after breaking above $1.50 for the first time on Wednesday.

Demand for Treasurys Thursday also was stoked by continuing problems for other credit assets. Mortgage finance company Freddie Mac reported a hefty $2.5 billion quarterly loss that exceeded analysts' estimates and the company's year-earlier loss. Freddie Mac cited soaring default rates.

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