(Bloomberg) -- Treasuries advanced Friday as traders reacted to evidence the US government shutdown may be curtailing economic activity.
Yields across maturities declined by at least two basis points, with longer maturities falling more than four basis points. The 10- and 30-year reached the lowest levels this week.
The suspension that began Oct. 1 after the White House and Congress failed to reach a funding agreement is expected to deprive another 2 million federal employees of paychecks next week, on top of a quarter million that weren't paid this week.
The shutdown "is playing a key role in the anticipation of a weakening economic outlook," said Tom di Galoma, managing director at Mischler Financial Group. "The bottom line is this could go on for a while."
While the shutdown has delayed the release of federally-compiled statistics, economists at Citigroup Inc. and Goldman Sachs Group said state-level data suggested initial jobless claims increased last week. That supports expectations that the Federal Reserve will cut interest rates for the second time this year on Oct. 29. Fed Governor Christopher Waller, speaking on CNBC Friday, said he supported two more rate cuts this year based on labor market weakness.
The Treasury rally has an array of additional catalysts including gains for the UK and French government bond markets, a drop in the price of crude oil toward the lowest level in several month, and a supportive supply backdrop. Strong investor demand for Thursday's 30-year bond auction left Wall Street dealers with a record-low share, and there are no note or bond auctions until Oct. 22.
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