Treasurys slide after strong GDP report

Government says the U.S. economy grew at 3.5% annual rate in the third quarter. Treasury completes a record $123 billion auction. Fed makes its final buy.

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By Ben Rooney, staff reporter

An eyeblink glance at the economy
The economy has grown for five straight quarters, but there are signs that the recovery is still fragile.
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NEW YORK ( -- Treasury prices fell Thursday after a report showed the world's biggest economy expanded last quarter and the government sold $31 billion in 7-year notes.

U.S. gross domestic product, the broadest measure of economic activity, grew at a 3.5% annualized rate in the third quarter.

The growth was stronger than expected. Economists surveyed by had forecast a 3.2% rate of growth.

GDP fell at a 0.7% rate in the second quarter and has been negative in five of the last six quarters as the economy suffered its most severe slide since the Great Depression.

The rebound in GDP suggests the economy has likely pulled out of the deep recession that started in December 2007. But many analysts say the third-quarter growth reflects government stimulus efforts and may not signal an immediate recovery.

A separate government report showed the number of Americans filing initial claims for unemployment benefits fell by 1,000 to 530,000 claims in the week ended Oct. 24.

Stocks rallied Thursday, after closing lower in the previous session, as investors cheered the GDP report.

Record auctions. The government sold $31 billion worth of 7-year notes in the last of this week's three auctions, which totaled a record $123 billion.

The U.S. sold $41 billion in 5-year notes Wednesday and $44 billion worth of 2-year notes Thursday. Both auctions received above average demand.

Demand at Thursday's auction was above-average but slightly weaker than the previous 7-year sale in September.

Investors submitted bids totaling $82.2 billion for the $31 billion worth of 7-year notes sold. The bid-to-cover ratio, which gauges demand, was 2.65. That's down from 2.79 at the last sale of 7-year notes, but was above the 2009 average of 2.52.

Indirect bidders, a category that includes foreign central banks, bought nearly 60% of the assets sold.

The government has held a series of record breaking debt sales this year to help fund its economic stimulus efforts and budget deficit.

While the market's appetite for U.S. debt has been strong, many analysts worry that the ongoing deluge of new issues could eventually overwhelm demand.

"Investor demand for newly issued Treasurys has remained robust this week," said Kevin Giddis, managing director of fixed income at Morgan Keegan.

Giddis said he is "amazed" that demand for U.S. debt, traditionally considered a safe-haven asset, has remained strong "in the face of mounting evidence that economic conditions are improving."

Fed's final buy. Meanwhile, the Federal Reserve bought Treasurys maturing in December 2013 and September 2014 on Thursday in the final phase of its plan to buy $300 billion worth of U.S. debt.

The Fed has been buying Treasurys since March in an effort to keep interest rates down on mortgage rates to help revive the housing market and heal the economy.

While it is difficult to determine the impact of the Fed's purchases, the yield on the benchmark 10-year note never rose above 4% since the program launched.

Bond prices. The benchmark 10-year note was down 22/32 to 101-2/32 and its yield rose to 3.50% from 3.41% late Wednesday. Bond prices and yields move in opposite directions.

The 2-year note edged down 2/32 to 100-2/32 with a yield of 0.99%.

The 30-year bond retreated 1-8/32 to 102-24/32. Its yield was 4.34%.

The yield on the 3-month bill was 0.06%. To top of page

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