yr bond soars on view debt talks progressed
NEW YORK, July 19 (Reuters) – Long-dated U.S. Treasuries prices rallied on Tuesday after President Barack Obama reported progress in talks to raise the U.S. debt ceiling.
While worries about default hurt the 30-year U.S. Treasury bond US30YT=RR on Monday, the bond reversed that loss on Tuesday and then climbed further when Obama reported progress in talks to raise the U.S. debt ceiling.
The 30-year U.S. Treasury bond US30YT=RR was up 2-1/32 in mid-afternoon trade, its yield falling to 4.19 percent from 4.31 percent late on Monday.
Benchmark U.S. 10-year notes US10YT=RR rose 14/32, their yields falling to 2.88 percent from 2.93 percent on Monday.
Traders pushed long bonds higher because “they think there’s some progress being made on the bipartisan agreement,” said BNP Paribas Managing Director of Treasury Trading Rick Klingman.
Obama said he and congressional leaders are on the “same playing field” on debt and deficits, though further work was needed. Obama said he would call House Speaker John Boehner to schedule further talks.
On Monday, traders shorted the 30-year bond, giving it a loss that made it stick out “like a sore thumb” on the yield curve when shorter maturities were little changed, said Richard Gilhooly, TD Securities interest-rate strategist in New York.
Long-dated U.S. Treasuries up on debt optimism
NEW YORK, July 19 (Reuters) – U.S. Treasuries prices climbed on Tuesday afternoon after President Barack Obama reported progress in talks to raise the U.S. debt ceiling.
While worries about default hurt the 30-year U.S. Treasury bond US30YT=RR on Monday, the bond reversed that loss on Tuesday and then climbed further when Obama reported progress in talks to raise the U.S. debt ceiling.
The 30-year U.S. Treasury bond US30YT=RR was up 1-21/32 in mid-afternoon trade, its yield falling to 4.21 percent from 4.31 percent late on Monday.
Benchmark U.S. 10-year notes US10YT=RR rose 11/32, their yield falling to 2.89 percent from 2.93 percent on Monday.
Traders pushed long bonds higher because “they think there’s some progress being made on the bipartisan agreement,” said BNP Paribas Managing Director of Treasury Trading Rick Klingman.
Obama said he and congressional leaders are on the “same playing field” on debt and deficits, though further work was needed. Obama said he would call House Speaker John Boehner to schedule further talks.
On Monday, traders shorted the 30-year bond, giving it a loss that made it stick out “like a sore thumb” on the yield curve when shorter maturities were little changed, said Richard Gilhooly, TD Securities interest-rate strategist in New York.
Long-term U.S. bonds fall on deficit fears
NEW YORK, July 18 (Reuters) – Prices of most U.S. Treasuries held steady on Monday. but investors sold 30-year bonds amid concerns over the U.S. deficit and lawmakers’ inability to raise the federal debt ceiling.
The sell-off in 30-year bonds, the riskiest U.S. debt, created the biggest differential between short- and very long-term yields in two weeks.
Five-year Treasury notes US5YT=RR, for instance, yielded just 1.44 percent, in part reflecting investors’ expectations for low inflation over that time frame.
In contrast, the 30-year bond US30YT=RR yielded 4.30 percent, the higher yield offered as a premium to investors taking a longer-term and therefore higher risk.
The concession on the price of the 30-year bond reflected the view that a $1.5 trillion federal deficit cut would leave some longer-term fiscal issues unresolved, said RBS Securities Treasury strategist John Briggs in Stamford, Connecticut.
The price of the bond came down and the yield it offered rose to compensate investors for the risk posed by longer-term fiscal problems, Briggs said.
Bonds attracted some buyers early in the session as uncertainty over how Europe would tackle its debt crisis made U.S. Treasuries look attractive, relatively speaking.
The debt ceiling: wanting to believe
Even if politicians have so far been unable to come to an agreement that will allow the U.S. debt ceiling to be raised by Aug. 2, the popularity of U.S. Treasury auctions this week indicates investors are still keeping the faith. Still, some are starting to get pickier about which Treasuries they would like to hold.
All three government bond auctions this week enjoyed a strong reception. Yet buyers of the 30-year bonds sold on Thursday, for example, might have felt particularly sanguine about the August debt ceiling date because the first coupon payment on those bonds is not due until Nov. 15.
That contrasts with some older Treasury securities that have payments due Aug. 15 or Aug. 31 which have not traded due to “concern that the coupon payment could be missed,” said Justin Lederer, interest-rate strategist at Cantor Fitzgerald.
A preference for bonds with coupons due after August seems “very valid,” said government bond strategist Ian Lyngen at CRT Capital Group, but the overall performance of the U.S. Treasury market, including Friday’s advance, suggests that “broad, bullish pressures are pushing yields lower.”
Those factors include a desire for a safe investments and the expectation that interest rates would stay low given weakening economic data, said Cantor’s Lederer.
Meanwhile, it’s not clear which, if any, coupon payments on U.S. government securities might be at risk, Lyngen said.
Bills will get rolled over and re-auctioned. If there is a missed interest payment, it might be on a longer-term security where a missed payment would not be as disruptive to the broader market The principle due for bills could involve big amounts and have broader ramifications for the money markets; foregoing a payment in the 10- or 30-year sector might be less of a shock.
What debt ceiling?
A solid bid for U.S. 10-year notes the Treasury sold on Wednesday appeared to defy the notion that credit investors would balk if talks to cut the U.S. deficit stall, or are separated from the more technical drive to raise the U.S. debt ceiling by Aug. 2.
Demand for the 10-year Treasury note sale on Wednesday was “strong,” said Ian Lyngen, government bond strategist at CRT Capital Group, helped by some pre-auction price reductions.
The robust bid for U.S. debt argued that euro-zone debt issues remained the most immediate concern for investors.
Euro zone plans for a leaders’ summit on a second Greek rescue were thrown into doubt by Germany on Wednesday. raising the possibility of a new pressures on the bloc’s high debtors. Europe’s pain was the Treasury’s gain. As Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank, put it:
The debt ceiling is a worry, but the other factors are more imminent.
Testimony by Federal Reserve Chairman Ben Bernanke also sounded supportive for Treasuries in the longer run, even if a rally in stocks led to some selling in bonds. Bernanke hinted that the Fed is actively considering some form of QE3 if the economy weakens much further. Argued Jack Ablin, chief investment officer at Harris Private Bank:
My initial reaction was ‘QE3 here we come’. We suspected the Fed would come up with some sort of QE3 in light of the disturbance surrounding the sovereign debt markets.
Another JOLT of Bad News on Jobs
As if last week’s dismal employment report was not enough, the clumsily-dubbed Job Openings and Labor Turnover Survey, or JOLTS, offers similarly discouraging signals. No wonder finding a job feels tough: there are nearly five workers (4.7) out there for every open position.
Credit Suisse Economist Henry Mo puts it rather starkly:
Labor demand is simply not strong enough to support a complete job recovery. Even if all job vacancies were filled overnight, almost 11 million workers would still be left unemployed.
Total job openings in May were about 40 percent above the trough of 2.1 million openings in July 2009. But the number is still more than one-third below pre-recession levels (4.56 million in 2007).
Weak labor demand is not limited to just a few sectors, like construction. It’s broad-based. That suggests a cyclical shortfall in aggregate demand, rather than a structural issue, Mo said.
Recent research from Goldman Sachs corroborates the notion that the job market rut is due to a weak economy rather than a mismatch in skills and available jobs. Goldman economists, like Federal Reserve officials, are still holding out for a second-half recovery. But they admit the prospects are looking dimmer, particularly with Europe’s debt crisis spreading and Washington still haggling over the debt ceiling.
Hot item: US bills offering zero interest
NEW YORK, July 6 (Reuters) – Investors beat a path to the U.S. Treasury’s sale of four-week bills on Wednesday, elbowing each other for the chance to buy debt offering no interest.
Portugal’s debt downgrade to junk status underscored worries about debt risks in peripheral European nations and fed the bid for short-term U.S. debt even though the bills mature on Aug. 4. That is two days after the Aug. 2 date by which the Treasury has said the United States could default on debt without a congressional vote to raise the U.S. debt limit.
“Investor demand remains very, very strong given the level of yields we see,” said Jeffrey Cleveland, senior economist at Payden & Rygel in Los Angeles, an investment firm with $60 billion in assets under management.
The U.S. sold $28 billion in four-week bills at a high rate of 0 percent, awarding 89.53 percent of the bids at the high.
Still, demand for the bills left the ratio of bids offered to those accepted at 4.79, Treasury said.
Four-week bills offering zero percent interest offer a real return of less than zero, Cleveland noted.
Competitive bids accepted totaled $26.95 billion and non-competitive bids accepted totaled $228 million.
Non-manufacturing ISM, eurozone debt
NEW YORK (Reuters) – The U.S. Treasury market will focus on the Institute for Supply Management’s June non-manufacturing survey on Wednesday after the group’s recent survey of the manufacturing sector lifted some of the pessimism concerning the economic outlook.
Investors’ preference for safe-haven assets like Treasuries versus riskier bets that promise greater returns will be influenced by other factors, both technical and fundamental, as well.
One alteration is the reduced presence of the Federal Reserve as a buyer of Treasuries now that the second phase of quantitative easing has concluded. The Fed will still be reinvesting proceeds from maturing Treasury and mortgage-backed securities, however. The Fed’s next policy meeting is August 9.
Developments in the Greek and eurozone debt situation can still prompt market moves. A fresh safety bid related to worries about Greece pushed five- and 10-year yields below their 200-day moving averages on Tuesday.
A downgrade of Portugal’s debt to junk by Moody’s rating agency was also supportive for Treasuries.
On the economic front, the report with the most potential impact on bond prices on Wednesday is the ISM survey due at 10 a.m. EDT.
A Reuters poll predicted a reading of 54.0 for the June ISM non-manufacturing index, up slightly from 53.6 in May.
Premium on safety aids U.S. bill sales
NEW YORK, July 5 (Reuters) – U.S. bills again proved popular at auction despite yields near zero percent.
The U.S. Treasury sold $27 billion in three-month bills US3MT=RR at a high rate of 0.025 percent, awarding 78.33 percent of the bids at the high.
Bids offered eclipsed those accepted by a 4.68 ratio.
A $24 billion sale of six-month bills US6MT=RR drew even stronger demand, with the ratio of bids offered over those accepted at 5.46. The bills were sold at a high rate of 0.080 percent, with 30.24 percent of the bids awarded at the high.
“Once again it’s another safe-haven bid,” said Cary Leahey, economist at Decision Economics in New York.
Though it occurred after the auction, a downgrade of Portugal’s debt ratings to junk by Moody’s Investors Service exemplified the kind of event that has made investors nervous.
Money market investors “who are busy reducing their exposure to European banks,” are a source of demand for U.S. Treasury bills, said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.
Bond yields up on Greece, upbeat Chicago PMI
NEW YORK, June 30 (Reuters) – U.S. Treasury debt prices extended the week’s losses on Thursday, ending the quarter on a weak note at odds with the bond market’s overall move up over the last three months.
Treasuries suffered from investors’ waning appetite for safety as Greece approved austerity measures needed to avert a debt default.
On the domestic front, data collected by Chicago-area purchasing managers showed stronger activity in the U.S. Midwest than economists had predicted.
Bond yields moved higher on the report, encouraging the “risk-on” trade that has come at the expense of bonds, said John Brady, vice president of MF Global in Chicago.
Thursday also marked the end of large-scale asset purchases by the Federal Reserve, in a program of quantitative easing, or QE2, designed to keep longer-term interest rates low and stimulate the economy.
The benchmark 10-year Treasury note US10YT=RR fell 17/32 in price, its yield rising to 3.17 percent from 3.11 percent on Wednesday, but still 30 basis points lower than 3.47 percent where it stood on March 31, the end of the first quarter.
Meanwhile, technical levels gave way to a trend toward higher yields, with the 10-year note breaking its 200-day moving average of 3.14 percent, and the five-year note hitting its 200-day average of 1.78 percent.
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