"You have month-end buyers and people who don't want to be short before the weekend because of the international situation," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New York. The Commerce Department reported that US gross domestic product grew 5.7 percent at an annual rate in the fourth quarter, a bearish influence on bonds, but economists said that performance would not be repeated in the current quarter.
"The rise in GDP was significantly stronger than expected, but the primary driver was inventories," said Ward McCarthy, chief financial economist and managing director in fixed income at Jefferies & Co in New York. "Going forward, consumer spending will be key to the strength of the recovery and since we expect consumer spending to be moderate, we do not expect the Q4 growth (pace) to be sustained."
Buying of long-dated Treasuries to meet month-end portfolio needs also helped to fuel the rebound in bonds, analysts said. So did a late pullback in stocks. US stocks fell as worries about fiscal turmoil in Europe and a drop in technology stocks offset positive reports on the US economy.
Questions about the fiscal stability of Greece, Portugal and Spain weighed on investors' sentiment and caused them to avoid riskier assets, putting the S&P 500 on track for its worst monthly decline in 11 months. "Greece is a dark cloud hanging over financial markets and for the time being it's not going anywhere," said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. "It's slightly supportive for Treasuries."
Benchmark 10-year Treasury notes rose 7/32 in price, rebounding from an earlier 13/32 decline. Their yield, which moves inversely to price, was 3.61 percent after hitting a session high near 3.70 percent. The 10-year yield was poised for its biggest monthly decline since March 2009, while the Standard & Poor's 500 was on track for its largest monthly loss since last February. Major US stock indexes were lower after rising as much as 1 percent earlier in the session.