But gains are limited ahead of next week's government debt auctions
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices logged a third straight week of gains on Friday, pushing yields down, fueled by concern that bank regulation would slow the economy's recovery.
"Investors, sensing a lot of market and regulatory uncertainty, have felt compelled to seek the safety of U.S. government debt," said Kevin Giddis, managing director of fixed income for Morgan Keegan & Co.
Yields on 2-year notes (UST2YR 0.78, -0.03, -4.16%) fell 3 basis points to 0.80%. Yields move in the opposite direction from prices and a basis point is 0.01%.
Yields on 10-year notes (UST10Y 3.60, +0.01, +0.39%) fell 1 basis point to 3.59%.
Ten-year yields are down from 3.68% a week ago, while 2-year yields have fallen from 0.88% last Friday.
A number of market professionals said President Obama's intention to limit banks' risk-taking pushed stocks to the biggest drop in months on Thursday, renewing interest in U.S. debt.
"More important than the actual banking plan presented yesterday was the distressing lack of specifics," strategists at RBS Securities wrote in a research note.
"The Obama administration is likely to release more details over the next few days and weeks, all of which could serve to temper the market's fears about the possible outcomes. For now, given the policy initiatives afoot, we'll err on the bullish side for Treasurys as the equity bulls continue to lick their wounds."
In the week, U.S. bond funds attracted $1.56 billion, according to EPFR Global. That's the 55th week of inflows, according to the data-tracking firm.
"Risk appetite remains on a very short leash," says Cameron Brandt, senior analyst with EPFR.
During the session, longer-dated yields inched higher as attention turned to the government's planned sales of $118 billion in debt and the prospect of companies adding to the massive amount of bonds they've already issued this month.
"We are faced with the prospects of a building corporate-issuance calendar next week in and around the 2-year, 5-year and 7-year Treasury issuance," said strategists at CRT Capital Group. "This leaves us open for the flow-driven selling pressure.".
Auctions on tap
Coming up next week, the Treasury Department will sell $44 billion in 2-year notes on Tuesday, followed by $42 billion in five-year debt (UST5YR 2.34, 0.00, -0.17%) the next day. It will also auction $32 billion in seven-year notes on Thursday.
Traders tend to sell existing holdings of securities before an auction to get a better price and have cash to buy the newest, most liquid maturities.
Traders also expect more corporate deals next week, as companies continue to find market conditions favorable. Companies have sold $96.7 billion already this month, including $4 billion from Morgan Stanley (MS 27.68, -0.12, -0.43%) on Thursday and $2.25 billion from Simon Property Group (SPG 70.59, -1.92, -2.65%) on Tuesday, according to Informa Global Markets.
Expectations of big corporate-bond sales can push around the government-debt market as companies and traders enter into so-called rate-lock agreements. In these deals, they bet on Treasury prices falling to guard against the effect that higher yields would have on the planned debt sale. Once the debt is sold, the hedges are reversed.
