BOND REPORT: Treasurys Advance On Last Day Of Quarter

By Deborah Levine

Treasury prices rose Tuesday, helped by disappointing economic data and investors buying U.S. debt at the end of the quarter to show less risky holdings in their accounts.

Gains in U.S. equity markets limited the upside in government debt, however.

Yields on 10-year notes (UST10Y) declined 4 basis points, or 0.04%, to 2.68%.

Two-year note yields (UST2YR) also gave up 6 basis point to stand at 0.79%.

Bond yields move in the opposite direction of prices.

Benchmark 10-year notes have rallied this month, pushing yields down from 3.04% on Feb. 27.

However, for the quarter, yields are up from 2.25% on Dec. 31.

Similarly, 2-year note yields have fallen this month but are higher from the beginning of the quarter.

Traders also noted that it is the last day of the quarter for many firms and the end of the fiscal year for other firms, as well as Japan.

Treasurys of all maturities have returned 2.01% in the month through Monday, according to an index compiled by Merrill Lynch. For the quarter, U.S. debt has lost 1.67%.

Corporate bonds have lost 1.59% this year, according to Merrill

By comparison, the Standard & Poor's 500 Index (SPX) has dropped 11.9% in 2009.

Treasury prices were lower in earlier trading after the Case-Shiller index said home prices fell a record 2.8% in January from December.

Separately, an index on manufacturing in the Chicago area for March hit the lowest level since 1980. Economists had expected the index, compiled from a survey of local purchasing managers, would improve.

Rounding out the day's data, consumer confidence ticked up in March from a record low in February, but the improvement wasn't as much as had been anticipated.

The Conference Board's index rose to 26 from an upwardly revised 25.3 in February. Economists surveyed by MarketWatch had expected a March reading of 28.

"Equity markets rallied over the past few weeks, an encouraging sign for consumers, but greater optimism about business conditions will likely be offset partly by rising unemployment and uncertainty about job prospects," said analysts at Barclays Capital.

Debt issuance, and a buyer

U.S. debt continues to be under pressure as the government breaks records with the amount of debt it's been sells in order to finance its economic-stimulus measures and programs to support financial markets.

"Treasury yields have generally trended higher during the quarter as supply pressures have mildly trumped downshifting growth expectations," said strategists at UBS Securities.

Investors also have been eyeing the extent of the Federal Reserve's recent purchases of Treasurys.

On Monday, the central bank bought $2.5 billion in bonds maturing in 17 to 30 years. That followed $15 billion in shorter-dated debt bought last week to kick off a massive purchase plan designed to force borrowing costs lower.

On Wednesday, the Fed said it will purchase debt maturing from 2012 and 2013.

In another part of the Fed's plan to make mortgages more affordable, it continued buying debt sold by housing agencies Fannie Mae (FNM) and Freddie Mac (FRE) and the Federal Home Loan Banks. It bought $3.2 billion in securities from them on Tuesday.