U.S. Notes Fall a Third Day as Corporate Debt Lures Investors
By Al Yoon
New York, July 12 (Bloomberg) -- U.S. Treasury notes fell for a third day, sending
10-year yields to their highest level in two weeks, as higher-yielding
non-government debt lured investors.
Corporate sales ``are definitely a factor'' keeping Treasuries down, said David
Ging, market strategist at Donaldson, Lufkin & Jenrette Securities. ``With no
economic data to focus on until the end of the week, it may even take on a little
more importance,'' he said.
The most-actively traded 10-year note fell 7/32, or $2.19 per $1,000 face amount,
to a price of 103, as its yield rose 3 basis points to 6.08 percent, the highest
since June 28. The most active five-year note fell 1/8, or $1.25 per $1,000 face
amount, to a price of 102 3/8. Its yield climbed 3 basis points to 6.17 percent.
The current 30-year bond dropped 6/32 to 104 29/32, and its yield rose 2 basis
points to 5.9 percent.
With 30-year bond yields staying below 6 percent for the past six weeks, amid
speculation the Federal Reserve may be near the end of its yearlong string of
interest-rate increases, investors have been looking to corporate bonds to pick up
yields of about 8 percent for highly-rated 10-year debt, analysts said.
Corporations and government agencies are selling at least $15 billion of
securities in coming weeks, giving investors plenty of options that yield more
than Treasuries.
The Fed has raised its federal funds rate to 6.5 percent in six moves since June
1999 to cool growth and keep inflation from accelerating. Policy-makers next
meet on Aug. 22.
Higher Yields
``Corporate debt is starting to look more attractive'' than government securities
with yields to Treasuries near decade highs, said Elisabeth Afseth, a bond
analyst at Williams de Broe in London. Investors are also speculating interest
rates won't rise much more, thus taking pressure off corporate cash flow used to
pay debt service, she said.
Among today's non-government debt sales, mortgage financier Fannie Mae is
expected to sell $5.5 billion in five-year notes.
Investment-grade corporate bonds yielded an average 1.91 percentage points
more than 10-year Treasuries on Monday, according to a Merrill Lynch & Co.
index. Although that's 11 basis points less than a month ago, it's wider than the
1.27 percentage point difference at the end of 1999.
Economic reports on Friday will probably show producer prices, a key measure
of inflation, rose 0.6 percent in June after being flat in the previous month,
according to economists in a Bloomberg News survey. Given expectations of
faster inflation, a seventh rate increase may not be a bad thing for bonds,
investors said. |
