Bonds rebound strongly into month end

By Pedro Nicolaci da Costa

NEW YORK (Reuters) - U.S. Treasuries rose sharply on Friday as investors cheered a temporary reprieve from a heavy debt issuance schedule and economic data proved weak, also supporting bonds.

Weak economic reports reminded investors that any incipient recovery from the worst recession in decades is at best rickety, restoring some of the allure of safe-haven government bonds.

Month-end interest from portfolio managers also bolstered the market, ensuring solid gains in longer maturities.

"All the factors that were leading us down have withdrawn and we're starting to see some real buying," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.

Bonds had been stuck in selling mode for two months, and the downturn reached fever pitch earlier this week as investors tried to absorb $101 billion of government note auctions this week alone, an amount that matched a weekly record set in April.

But the downturn seemed to have gone far enough to attract some buyers, allowing benchmark 10-year notes to jump 1-5/32 for a yield of 3.47 percent, versus 3.61 percent at Thursday's close. That was still up more than a full percentage points from lows seen back in March when the Federal Reserve first announced its emergency Treasury purchase program.

Traders cited the unwinding of short positions related to the mortgage market as further bolstering buying.

The session's economic data helped Treasuries. Revisions to first-quarter gross domestic product showed the economy contracting at an annual rate of 5.7 percent in the first quarter, a slightly smaller drop than initially estimated but worse than analysts' expectations.