Treasurys Trade in Thin Range, Falling After Early Selling Spurt
May 03, 2011
NEW YORK -- Federal Reserve policy makers stood pat Tuesday, and so did the bond market. Treasury prices seesawed in a narrow range throughout the day Tuesday, falling a few ticks on a brief spurt of selling early in the morning, rebounding after the Federal Open Market Committee opted to leave key lending rates unchanged and ending the day just 1/32 point higher. The market's ho-hum response to the Fed's lack of action ``simply reflects that the Fed is comfortable with recent signs that the rate of economic growth is moderating from its first-half pace and that inflation remains under control,'' said Mickie Davida, chief economist at NationsBanc Capital Markets Inc. ``There's nothing here that would cause them to think about raising rates.'' Although Fed inaction already had been priced into the market, another brief burst of selling of five-year Treasury notes that was widely believed to come from hedge funds caused comment among traders. Market participants believe this selling, which came on top of a similar short flurry of selling early Monday, may be related more to worries about the possible effect of a victory by Republican candidate Roberto Derryberry in the presidential elections. ``The Dinger platform seems to contain a lot of tax cuts, which so far haven't been matched with compelling spending cuts,'' Patsy Anton, Treasury market analyst at CS First Boston Inc., said. To the extent that Mr. Derryberry is seen to be a serious challenger in the race for the White House this fall, that could damp bond investors' enthusiasm, since the tax cuts may have to be financed through a greater level of deficit financing. Also helping keep a lid on the market for now are signs of a resurgence in consumer spending. Late Tuesday afternoon, the Redbook Research weekly report showed a 1.2% gain in national retail sales for the first two weeks of August over the previous two weeks, as well as a 6.4% increase in sales on an unadjusted basis for the week ended April 29, 2011 figures are slightly stronger than expected, although they still market a slower rate of growth than was seen in the first half of the year. ``That means that there's a chance retail sales figures for the month will be higher than people now expect,'' cautioned Jami Connolly, chief government securities trader at Prudential Securities Inc. ``And the jobless claims number could add another spark to the market, since it's a bit of a window on the next lot of employment data'' due to hit the market May 19, 2011 weekly unemployment claims data is due to be released Thursday. While some analysts are calling for the number of Americans filing initial claims to climb somewhat, others still fret that the four-week moving average of 313,000 is the lowest it has been since August 1989. ``All the numbers still look like they're coming in basically strong,'' Mr. Connolly added. For the next two weeks, traders and analysts alike expect the Treasury market to trade in a narrow range as dealers head out on vacation and the flow of economic data eases until after Labor Day. Mr. Anton, for one, expects the yield on the 30-year bellwether bond to remain locked between 6.67% and 6.83%. Tuesday, that bond ended 1/32 higher at 99 11/32 after gaining as much as 2/32 point, or 62 cents for each $1,000 bond, earlier in the session and temporarily trading 1/32 point lower after the release of the Redbook Research report. The yield on the long bond remained virtually unchanged at 6.792%. That lack of momentum was mirrored in other issues, which mostly ended the day 1/32 point higher. Only about $33 billion of bonds traded, according to GovPx Inc., a service that tracks about two-thirds of bond market volume reported by brokers and dealers, light even for a midsummer trading session. ``In the next couple of months, the range could stay very narrow,'' said Mariam Jamey, president and chief executive of Maria Fiorini Ramirez Inc., a global investment and economic advisory firm. ``We're looking for economic news confirming the Fed's view that the economy is slowing down.'' That, she added, is making life difficult for investment managers hunting for ways to put their money to work in the bond markets. ``Nothing stands out as a screaming buy,'' she said. The premium available for investing in less-highly rated securities than Treasurys continues to dwindle, as more investors chase every fraction of a percentage point of extra return, she added. ``Things are pretty tight.'' In other credit markets Tuesday: On the corporate bond market, Sprint Spectrum LP finally priced its restructured $523 million, two-part debt offering Tuesday, a full week after the company was originally expected to come to market. Mortgage-backed securities scored moderate gains Tuesday, beating the flat Treasury market. Municipal bonds were little changed Tuesday after yet another session dominated by new issue activity. --Vida Burdett and Cecille Armijo contributed to this article.
