February 23, 2018 / 7:21 PM / a year ago

TREASURIES-Yields fall on stock market jitters, month-end demand

 (Adds quotes, updates prices)
    * Nerves about volatile stock markets seen helping bonds
    * Month-end demand seen boosting fixed income
    * Fed chief Powell's testimony in focus next week

    By Karen Brettell
    NEW YORK, Feb 23 (Reuters) - U.S. Treasury prices gained on
Friday as uncertainty about recent stock market volatility
helped boost demand for the bonds and as investors rebalanced
portfolios ahead of month-end.
    Continuing nerves about the direction of stocks led some
investors to seek out lower-risk assets.
    "There's been some substantial buying that seems to be
sustaining amid concerns about the equity markets," said Guy
LeBas, chief fixed income strategist at Janney Montgomery Scott
in Philadelphia.
    "We're also entering the month-end rebalancing period and
after the spurt of volatility we had in all markets, but
particularly in equities, it may encourage some rebalancing
towards fixed income," LeBas said.
    Fixed-income index extensions this month are larger than
normal, which may be driving more month-end activity.
    “We’re going to have an above average month-end extension,”
said Mike Lorizio, a senior fixed income trader at Manulife
Asset Management in Boston. “I think some of that month-end
buying is coming in here at levels that look relatively
    Investors that were underweight bonds were also seen as
repositioning after the two-month selloff.
    Futures data shows that “some investor classes have got a
bit toward extreme levels of underweight duration in the
back-end, and I think we’re seeing profit-taking or some
reversing of that,” Lorizio said.
    Benchmark 10-year notes             gained 14/32 in price to
yield 2.868 percent. The yields have fallen from a four-year
high of 2.957 percent on Wednesday.
    Bonds were also supported on Friday by the completion of
$258 billion in new supply this week, which was the second
largest ever over a three-day period.             
    Investors will turn their attention to Federal Reserve
Chairman Jerome Powell's first semi-annual monetary policy
testimony to Congress on Tuesday and Thursday, which will be
watched for any update on the U.S. central bank's economic
forecasts in light of the Trump administration's tax cuts and
spending plans, and a recent uptick in inflation.
    "It's not just the recent data, because in the short term
it's very random, but on the Fed's level of confidence in
inflation over the next six to 12 months," said LeBas, adding
that inflation "will establish whether we see three or four rate
hikes during the year."
    Data next Thursday on personal income and spending in 
January will give the next indication of price pressures in the

 (Reporting by Karen Brettell; Editing by Andrea Ricci)
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