Treasuries hemmed in

Treasuries hemmed in
By Jennifer Hughes in New York, Joanna Chung in London and,David Turner in Tokyo
Published: February 17 2006 02:00 | Last updated: February 17 2006 02:00. Copyright by the Financial Times

US Treasuries remained bound in tight ranges yesterday as investors digested data while keeping one eye on the second day of Ben Bernanke's Congressional testimony.

The new Federal Reserve chairman largely repeated his views from the previous day, including his opinion that the inversion of the Treasury yield curve did not imply a warning about the economic outlook.

There were strong data on new housing starts, aided by a warm January, and an unexpectedly strong jump in the Philadelphia Fed's February activity index. But the market focused on the fall in the prices paid component and there was little reaction.

"Today may be a case of looking for factors to move the market that just are not present," said Brian Robinson at 4Cast consultancy.

Shortly after the Philly Fed report, yields on two-year bonds were up 0.3 basis points at 4.672 per cent. Ten-year note yields were up 0.2bp at 4.602 per cent.

The argument for further interest rate cuts in the UK was bolstered by weak January retail sales data, helping giltsoutperform their European counterparts.

The yield on the 10-year gilt fell 1.8bp to 4.175 per cent and the two-year gilt yield lost 3.2bp to 4.218 per cent.

Vicky Redwood, UK economist at Capital Economics, said that recent talk of a consumer recovery from the Monetary Policy Committee was "likely to prove premature" at a time when the economic drivers of spending were so weak.

The sale of £2.5bn of 50-year conventional gilts - the last tranche for this fiscal year - was met with much less demand than the last auction of the same paper in December. However, the paper was sold at a yield of just 3.82 per cent and in late trading the 50-year gilt yield was down 2.5bp to 3.765 per cent.

Eurozone government bond prices were mixed amid new supply of bonds from France and Spain. The yield on the 10-year Bund added 2.3bp to 3.511 per cent. The two-year Schatz yield fell 0.6bp to 2.931 per cent.

The yield on the benchmark 10-year Japanese government bond fell 2bp to 1.545 per cent as bargain hunters returned.