Treasurys post weekly gain

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- Prices for U.S. Treasurys rose Friday as investors responded to mixed corporate results and a report that said inflation remains subdued.

What prices are doing: The benchmark 10-year note was up 17/32 to 104-28/32 and its yield fell to 2.93% from 3.05% late Thursday. Bond prices and yields move in opposite directions.

The 2-year note gained 1/32 to 100-2/32 and its yield was 0.59%, while the 5-year note rose 13/32 to 104-24/32 with a yield of 1.67%.

The 30-year bond rose 25/32 to 107-19/32 and its yield was 3.94%.

Friday's advance caps a weekly gain for the Treasury market. Prices eased earlier in the week as optimism about the second-quarter corporate results period stoked demand for stocks. But investors shied away from more risky assets later in the week as concerns about the economy overshadowed positive earnings reports.

What's moving the market: Investors continued to favor the safety of U.S. debt over more risky assets Friday after quarterly sales figures from Bank of America and Citigroup came in below forecast.

While BofA (BAC, Fortune 500) reported second-quarter profits that beat analysts' expectations, the bank said revenue fell versus last year. Citibank (C, Fortune 500) said earnings and sales dropped from a year ago, due to the weaker stock market.

The results weighed on the stock market. In addition, the euro weakened against the dollar, reviving concerns about economic weakness in the European Union.

Treasurys were also supported by a report that showed inflation remains tame.

The Consumer Price Index (CPI) a measure of inflation at the consumer level fell 0.1% in June, in line with forecasts. CPI fell 0.2% in May. Core CPI, which strips out volatile food and energy prices, rose 0.2% in June, versus forecasts for a rise of 0.1%.

Bond holders pay close attention to measures of inflation because rising prices can erode the value of fixed-income assets.

Separately, the Treasury holdings of all foreign official purchasers, such as central banks, dropped to $2.7 trillion in May from $2.72 trillion in April, according to the government's monthly international capital report.

China, the largest holder of U.S. debt, trimmed its official holdings of Treasurys by 4% in May to $868 billion.

But purchases by overseas private investors offset the slip in central bank demand. All told, foreigners bought a net $35 billion of long-term U.S. securities in May, and global Treasury holdings rose by $6 billion in the latest month.

What analysts are saying: Abigail Doolittle, an analyst at Peak Theories Research, said renewed concerns about the debt crisis in Europe will boost demand for Treasurys over the short-term.

But she added that foreign investors will eventually lose their appetite for Treasurys as the U.S. budget deficit grows unsustainable.

"I expect Treasurys to remain strong in the near- to mid-term," she said in a research report. "Longer-term, of course, I expect Treasurys to spike suddenly in the other direction, up, up into a double-digit yield for the 10-year as foreign investors refuse to fund our deficit and our addiction to 'stuff.'" To top of page

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