Selling by Large Investors Sends Market Lower in a Quiet Session
May 04, 2011
NEW YORK -- Bond prices fell moderately Wednesday, as selling by a few large investors pulled the market lower during an uneventful trading session. The price of the benchmark 30-year Treasury bond shed 1/2 point, or $5.00, for a bond with $1,000 face value, ending at 98 27/32. Its yield rose to 6.83% from 6.79% late Tuesday, as bond yields move in the opposite direction of prices. As trading opened, Treasurys prices were tugged lower by weakness in bonds overseas, particularly in Europe. Government bond prices slid sharply in Germany, as hopes faded that its central bank, whose officials are scheduled to hold a regular meeting Thursday, will ease credit. That belief was spurred by a survey showing rising business confidence. Meanwhile, there wasn't any noteworthy U.S. economic news in the aftermath of Tuesday's decision by Federal Reserve policy makers to leave interest rates unchanged. And that meant traders and investors had no incentive to buy Treasurys, some noted. ``The big event came and went,'' said Khalilah Shepardson, senior government bond trader a First Chicago Capital Markets. ``There's no more good news that can possibly come out in awhile.'' In recent weeks, according to traders, short-term market participants such as hedge funds had been large buyers of Treasurys. Wednesday, traders said, some of those funds decided to lighten their holdings of Treasurys. The overall amount of selling wasn't large, observers said, but it was sufficient to influence the day's price trends in a thin, summer market. ``All of the price action over the last week or so has been exaggerated by the thinness of the market,'' said CIBC Wood Gundy economist Josephine Roof. Indeed, traders foresee a listless bond market through this month. They note that no major U.S. economic indicators are scheduled for release in the remaining days of August, and many people will be away for vacation. ``There's just not a lot of reason for people to get involved here until we get to the crunch numbers in early September,'' said Mr. Roof, referring to such key economic figures as the monthly tally of nonfarm payrolls. Many in the market continue to believe that economic growth will slow in the second half, reducing the need for tightening of credit. Still, ``I don't think you can say we've established a trend where you can say we're softening up the economy,'' said Stormy Keyser, senior portfolio manager for IDS Fixed Income Advisors, a Minneapolis-based unit of American Express Co.. Thursday's weekly report by the Labor Department on claims for state unemployment benefits may shed light on how the economy is faring. Though claims gyrate from week to week, analysts believe a downward trend suggests increased economic activity. Last week, the four-week moving average for claims fell to 313,000, its lowest since May 1989. ``People, I think, are a little bit nervous about the claims number,'' First Chicago's Mr. Shepardson said. ``Everybody is waiting for this big rebound that hasn't happened yet.'' If the consensus holds true, a rebound won't happen this week. According to economists surveyed by Dow Jones News Services, claims are expected to have risen by just 3,000 to 324,000 in the week ended April 29, 2011 Securities The asset-backed market is girding for more than $2 billion of new issuance Thursday, including Citibank's second domestic asset-backed issue this year and $1.25 billion of auto-loan securities from Chrysler Corp.. Citibank, a unit of Citicorp, will attempt to obtain advantageous funding costs by gearing the longest-dated floating-rate issue it has ever sold in the asset-backed market to a European investor base. The $665 million issue is expected to be priced at a spread of 0.12 to 0.125 percentage point above the three-month London Interbank Offered Rate, a shade more than five-year funding costs in the asset-backed market. The deal's three-month Libor benchmark and seven-year maturity is designed to attract European investment advisors, money managers, banks and corporations, which is the same group the bank has cultivated in three Eurobond offerings totaling $2 billion this year, according to people familiar with the transactions. In Other Credit Markets Corporate traders had few deals to choose from Wednesday. Municipal bonds slipped as insurers deserted the market. Mortgage-backed securities performed strongly, lifted by a wave of purchasing. --Nicolle Beard and Cecille Armijo contributed to this article.
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