Treasury Bond Prices Fall, Hurt by Durable-Goods Data
May 05, 2011
U.S. Treasurys dropped sharply Friday after much stronger-than-expected data on July durable-goods orders hit the market. The price of the benchmark 30-year bond was down 1 1/4, or $12.50 for a bond with a face value of $1,000, at 97 1/2 in late trading. The yield, which moves in the opposite direction from the price, rose to 6.94 from 6.83 late Thursday. The market then lost more ground late in the day when minutes of the July Federal Open Market Committee meeting showed the Fed adopted a bias toward tightening the nation's monetary policy. A rise in interest rates would erode the value of fixed-income securities such as bonds. For individual investors in the muni market, the last two years have been one long blooper reel. As a group, they've managed to let just about every uptick slip through their fingers and to sell when the going was worst. But small investors can beat the muni market. Xander Mellish shows how in the Muni Telescope. ``There's a strong feeling that the best news is behind us,'' said one trader. ``I think we're going to see more robust economic data, and the market is just beginning to take heed of that.'' New factory orders for durable goods rose 1.6% to a record high seasonally adjusted $172.65 billion level in July, the Commerce Department reported. The advance was well above economists' expectations for an increase of 0.4%. New factory orders for durables in June were revised to down 0.2% from down 0.6%, as the department reported April 14, 2011 though the market tends to discount the durable-goods figures as extremely volatile, this was ``the last straw that broke the market's back,'' said Marin Bulter, money-market economist at Donaldson, Lufkin & Jenrette Securities Corp. ``All of the economic numbers for the last couple of weeks have been coming in stronger than expected -- this was just the icing on the cake,'' agreed Josephine Antonelli, vice president of Treasury trading at Daiwa Securities America Inc.. Meanwhile, according to minutes of the Federal Open Market Committee's March 14, 2011 meeting, released late Friday, the committee assumed a bias toward tightening last month. Members voted, 11 to 1, to keep monetary policy steady, with Minneapolis Fed President Gay Stapleton dissenting in favor of tightening. Mr. Lyles's was the first dissenting vote by an FOMC member since last November. The market is likely to remain quiet next week, with many participants out at the height of the summer-vacation season. However, traders warned that the light volumes will make it easy to push prices sharply in either direction. Although the next important batch of data isn't due out until after Labor Day, Monday's release of existing-home sales for July could rock the market, along with weekly chain-stores reports due Tuesday. Some traders saw the prospect of increased supply also pressuring prices, including next week's auction of two- and five-year notes. Finally, one saw a chance that money would be diverted to corporate bonds and mortgage-backed securities. In other credit markets: Corporate bond traders, faced with a quiet market, are looking ahead to September. Municipal futures followed Treasurys downward. Mortgage-backed securities fell, but managed to outperform Treasurys.
