Signs of weakness in economy boost Treasurys

NEW YORK — Treasury prices bounced higher Friday, capping a tumultuous week that saw a record amount of debt issuance, as a government report pointed to slow growth ahead for the economy.

Long-term Treasurys saw the biggest gains, extending an advance that began Thursday following a successful auction of $28 billion of seven-year notes. The results of that auction helped ease worries about the huge influx of supply coming into the market after two auctions earlier in the week were met with only tepid demand.

On Friday, a government report revealed more weakness in the economy, sending investors in search of safe-haven assets like Treasurys.

The Commerce Department said the nation’s gross domestic product, a measure of the economy’s total output, fell at a slower-than-expected pace of 1 percent in the second quarter. But the revised first-quarter GDP contraction came in much lower, at 6.4 percent from 5.5 percent, the worst quarterly reading in nearly 30 years.

The report also said consumers cut spending by 1.2 percent in the second quarter, after a slight increase in the previous three-month period. The latest data suggesting a slow recovery helped draw money to bonds, which tend to do well in times of low inflation and muted economic growth.

In late trading, the benchmark 10-year Treasury note rose 1 1/32 to 97 1/32, pushing its yield down to 3.48 percent from 3.61 percent late Thursday.

The two-year note rose 4/32 to 99 24/32, and its yield fell to 1.12 percent from 1.18 percent.

The 30-year bond rose 1 25/32 to 99 5/32, and its yield fell to 4.30 percent from 4.41 percent.

The yield on the three-month T-bill held steady at 0.17 percent. Its discount rate was 0.18 percent.

Investors also found some relief Friday in the fact that the Treasury’s week of record auctions was over. The government issued more than $200 billion of new debt this week.

One of investors’ biggest concerns this year has been whether there will be enough demand to support the massive amounts of debt being pumped into the system to fund the government’s economic stimulus programs. If demand were to continually fall short, the government would have to bump up the returns it offers investors on bonds in order to attract enough buyers. That could send borrowing rates higher on loans including mortgages.

With no major Treasury auctions expected now until the week of August 10, analysts believe prices should find support over the next few days, keeping yields in check.