The decline in interest rates slowed on Friday, as investors booked profits from a week-long rally in government bonds.
At 4 p.m., the yield on the 30-year Treasury bond was at 6.22%, up 2 basis points from late Thursday. But over the week, the bond lost 12 basis points in yield.
The spread between the current-coupon and the previous on-the-run 30-year Treasury remains unusually wide. At 4 p.m., the older issue was 15 basis points higher in yield. Typically, there is a 5-basis-point difference.
The wide spread reflects "the scarcity value" of the newer issue, analysts said. The Treasury, in a move aimed at cutting its borrowing costs, has cut back 30-year bond offerings to twice a year from quarterly.
Notes Were Unchanged
Intermediate Treasuries were flat and concern about this week's scheduled sale of $16 billion in two-year notes on Tuesday and $11 billion in five-year notes on Wednesday.
Ten-year notes yielded 5.61%, unchanged on the day and down 9 basis points on the week; five-year notes yielded 4.95%, up 1 basis point on the day, but down 9 on the week; and two-year notes yielded 3.91%, up 2 basis points on the day, but down 5 basis points on the week.
On a bond-equivalent basis, three-month Treasury bills ended the week at 3.04%, up 2 basis points on the day, but down 2 on the week.
The closely watched spread between 30- and 10-year Treasury widened to 61 basis points from 55 earlier in the week.
Spread May Narrow Further
The spread has shrunk sharply from mid-May, when it was about 90 basis points -- and market analysts think the spread still has room to narrow further. John Lonski, senior economist at Moody's Investors Service, said that the spread typically is about 30 basis points at this point in economic recoveries. "The spread is still wide from a historical perspective," he said. Thus, if the economy continues to struggle and inflation remains under control, long-term yields could slide to as low as 6% by the end of September, he said.
Wells Economist Concurs
Gary Schlossberg, economist at Wells Fargo & Co., agreed that rates have room to drop further. He noted that on a real basis. that is, subtracting the inflation rate, long-term yields are currently about 3.7%. The real yield should be closer to 2.5% to 3%, he said.
No major interest rate moves are expected this week. On Wednesday, the government will report on durable goods orders for July -- and that is the only major economic report due out this the week.