May 2, 2017 / 6:53 PM / 4 months ago

TREASURIES-Bonds rally as weak auto sales point to slowing economic growth

 (Recasts with auto sales; adds quotes; updates prices)
    * Focus on Fed meeting statement due out Wednesday
    * Treasury refunding watched for signs of ultra-long bond

    By Karen Brettell
    NEW YORK, May 2 (Reuters) - U.S. Treasury prices gained on
Tuesday after weak auto sales raised concerns about the strength
of consumer spending, and as investors awaited the conclusion of
the Federal Reserve’s two-day meeting on Wednesday.
    Major automakers on Tuesday posted declines in new vehicle
sales for April.             
    The auto sales come after other data including gross
domestic product last week and the March payrolls report have
showed slowing economic momentum.
    Auto sales “were weak across the board from everybody...with
dramatically rising inventories,” said Mary Ann Hurley, vice
president in fixed income trading at D.A. Davidson in Seattle.
    The Fed is expected to keep interest rates steady when it
announces its policy decision on Wednesday, after hiking rates
in March, but investors are waiting to see if the central bank
addresses recent weakness and whether it indicates that a new
increase is likely at its June meeting.
    “If you have weak auto sales, which is definitely a sign of
current activity, not a lagging indicator, to me that’s going to
lower the case for the Fed going in June,” Hurley said.
    Futures traders are pricing in a 71 percent chance of a rate
hike in June, according to the CME Group’s FedWatch Tool.
    Benchmark 10-year notes             gained 9/32 in price to
yield 2.30 percent, down from 2.33 percent late on Monday.
    Investors were also looking for details on how and when the
Fed may begin reducing the size of its bond holdings.
    Friday’s employment report for April is also keenly awaited
for signs of whether jobs growth is strong enough to encourage
the Fed to raise rates again in the near-term.
    The Treasury is due to announce its funding needs for the
coming two quarters on Wednesday, with traders focused on
whether the government gives any new details on possible plans
for longer-dated bonds.
    “There’s been a lot of chatter about what the potential is
for an ultra-long bond. We don’t expect that we will actually
see an announcement but we should get some more color on what
people are thinking," said Ian Lyngen, head of U.S. rates
strategy at BMO Capital Markets in New York.
    Treasury Secretary Steven Mnuchin repeated in an interview
with Bloomberg on Tuesday that issuing debt exceeding 30 years
in maturity "can absolutely make sense."
    The government will also announce on Wednesday how much it
plans to sell in three-year and 10-year notes and 30-year bonds
next week.

 (Editing by Bernadette Baum and Leslie Adler)
  
 
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