US govt bonds close at highs as stock market declines

US government bond prices closed at their highest levels of the day, benefiting from declines in the share market and repositioning ahead of the three-day Martin Luther King observance, dealers said.

The bond market closed early for the holiday. At 2.00 pm, The 5.375% 30-year bond was at its highs, up 21/32 at 100-8/32 yielding 5.357%, the 5.0% 10-year bond up 10/32 at 100-27/32, yielding 4.888%, and the 3.0% 2-year bond up 2/32 at 100-22/32, yielding 2.878%.

Dealers said bonds opened with small gains, then sold off slightly on news that the University of Michigan preliminary consumer sentiment index rose to 94.2 in January from 88.8 in the final December reading.

The consensus forecast of Wall Street economists was for the consumer sentiment index to rise to 89.8.

However, there was little reaction to news that the trade deficit for goods and services narrowed to a seasonally-adjusted $27.9 billion in November from a revised 29.3 billion in October. The consensus forecast of Wall Street analysts had predicted the November deficit would narrow to $29.0 billion.

Dealers said the news pressured the bond market because it suggested that the economic recovery may be well underway.

However, bonds later recovered their strength and rose to strong levels by closing time. Dealers said the main factor lifting bonds near the end of the session was the continued selloff in the share market.

In addition, the share market benefited from a small amount of portfolio repositioning ahead of the weekend.

The bond market will remain closed on Monday and reopen on Tuesday.