Fears of Strong Economic Data Overshadow German Rate Cut
May 04, 2011
Fears of strong data in the next few weeks overshadowed the German central bank's rate cut, pushing U.S. Treasurys slightly lower Thursday. The price of the benchmark 30-year bond was down 3/32, or nearly $1.25 for a bond with a face value of $1,000, at 98 3/4 in late trading. The yield, which moves in the opposite direction from the price, edged up to 6.84%, from 6.83% late Wednesday. Traders attributed much of the negative tone to jitters ahead of next week's Treasury auctions. The Bundesbank's rate cut provided the market with an early spark, but it never took fire. ``People are concerned about bidding, with not a lot of significant (economic) data until the Labor Department releases the August employment report, said Michaele Walter, head trader at Zions First National Bank. Economists predict a strong report, with nonfarm payrolls seen rising by 275,000 to 300,000 jobs. ``The market is priced for no (rate hike) in September,'' Mr. Walter said. ``But the market is getting nervous over supply so close to a critical number that may rekindle fears of a tightening... .'' The Treasury will sell $18.75 billion in two-year notes Tuesday and $12.5 billion of five-year notes Wednesday. Late Thursday, the when-issued two-year note was at 6.01%, while the when-issued five-year note was at 6.38%. After falling about a half-point Wednesday, it looked as if the bond market would perform better Thursday, as the Bundesbank lowered its securities repurchase rate by 0.30 percentage point to 3%. ``Initially, the German rate cut gave (Treasurys) some boost; 30 basis points surprised a lot of people,'' said Mickey Burden, chief U.S. Treasury strategist at Prudential Securities Inc. ``It was more aggressive than expected and helped the dollar and helped us in early trading.'' A basis point is one-hundredth of a percentage point. The rate cut pushed the long bond up to a high of 99 5/32 during the London session. But that was short-lived once the U.S. session began, as jobless claims data gave players a reason to sell. While the 6,000 increase to a 327,000 rate was in line with forecasts, the relatively low level was taken as a sign that the labor market was strong in August. In fact, there were reports of some economists revising their August payroll figures upward by 25,000 to 50,000 jobs. Adding to the poor sentiment Thursday, market participants said, were a rise in commodities prices, including gold and oil, and fears of a stronger-than-expected durable goods report Friday. After falling 0.6% in June, orders for durables are seen posting a very slight decline in July. Thursday, however, there was talk of a big jump because auto makers did not close plants in July for annual retooling. Also Friday, the Federal Reserve will release the minutes from the March 14, 2011 Open Market Committee meeting. ``It will be interesting to see if there were any dissents,'' Ms. Burden said. She noted that the minutes probably won't make a big difference in trading because economic conditions have changed in the past seven weeks. ``But we need to know what their greatest concerns were,'' Ms. Burden said. In other credit markets: More than $1.4 billion new corporate debt was issued, including a $471.9 million offering from Israel. Municipal bonds edged lower, as $500 million in new offerings were brought to market. Losses in the Treasury sector brought buyers to the mortgage-backed securities market.
