Treasury Prices Slide As Fed Meeting Looms
May 01, 2011
U.S. Treasurys failed to recover from an early bout of selling Monday, as the market braced for a key Federal Reserve policy meeting. The price of the benchmark 30-year bond was down 14/32, or nearly $5 for a bond with a face value of $1,000, at 99 10/32 in late trading. The yield, which moves in the opposite direction from the price, rose to 6.79% from 6.76% late Friday. Want to roll the dice with Westgate? Sure you do. Welcome to the world of disaster bonds. Bond prices were knocked lower at the opening, wiping out practically all of Friday's modest gains. Traders reported sellers were lined up at the start of trading, even though there had been no news to trigger such a move. Hedge funds and central banks were rumored to be the sellers, even though traders saw few large trades Monday. After the initial bout of selling, bond prices languished at their lower levels for the remainder of the day as buyers remained absent ahead of Tuesday's Federal Open Market Committee meeting, observers said. The Fed is widely expected to leave interest rates unchanged at this meeting, and players are positioned accordingly for the most part, traders and analysts said. In spite of the widespread expectations for no rate change, recent data have been nagging at some observers, who question the validity of a second-half economic slowdown. Last week's release of slightly stronger-than-expected retail sales and consumer price data shook the market a bit. Some observers noted that even if the Fed left its policy on hold at the August FOMC meeting, the outcome of the September meeting is still up in the air. This means that the market will continue to watch economic data carefully, looking for confirmation that a slowdown has taken hold, traders and analysts said. After the conclusion of Tuesday's FOMC meeting, the market likely will be ``thirsting for data,'' said Alberta Heil, money market economist at UBS Securities. However, ``this week and next, there's not a lot to look forward to. There's nothing (among data releases) to establish a trend for us until after Labor Day.'' The FOMC meeting is largely expected to overshadow Tuesday's release of the June trade balance. The U.S. trade deficit is expected to have narrowed to $9.6 billion in June from a gap of $10.9 billion in May. In other credit markets: The Canadian government's $1 billion global bond sale grabbed the spotlight in the corporate bond market on a lackluster day. Municipal bonds were flat to slightly lower, as investors awaited a rush of new issues and a Federal Reserve policy-making meeting Tuesday. Mortgage-backed securities began the new week slightly lower Monday, as investors and Wall Street awaited the outcome of Tuesday's Federal Reserve Board policy meeting.
