U.S. Treasuries End Lower, Bowed By Weight Of Supply, ECI Jitters
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CHICAGO, July 26 /PRNewswire/ -- U.S. Treasury prices ended lower Wednesday, giving way in late light trading to the weight of supply across the corporate, agency and Treasury markets, as well as to jitters ahead of Thursday's release of second-quarter employment cost index data.
Although U.S. stock prices remained weak in late-day trading, with the Dow Jones Industrial Average down over 115 points, losses in equities were not enough to get Treasuries to rally past Tuesday's highs, traders pointed out.
On the corporate front, pricings included a $3 billion BankOne five- and 10-year issue, a $2 billion Ford Motor Credit two-year floater and $4 billion five-year fixed. In addition, Fannie Mae announced the upcoming sale of a new two-year and the re-opening of 10- and 30-year issues, for a total of $10 billion in issuance.
Interest in the U.S. sister markets was robust. ``Spreads have tightened in the secondary markets, which is a positive,'' pointed out Gemma Wright, a strategist at Barclay's Capital in New York.
Although she stressed the markets will have to weather a lot of data before month-end, Wright said it appeared the markets will have a better tone by the end of the month, with ``modest extensions'' for month-end.
But first will be the release of the ECI at 8:30 a.m. EDT, and Friday's second-quarter gross domestic product report set for Friday.
The consensus estimate for ECI is up 1.0%, according to a survey by Market News International. That increase would show a slowdown from the 1.4% pace in the first quarter, but analysts warn that medical care costs have risen more rapidly than expected and pose an upward risk to employment costs.
Other upside risks include the fact that the Bureau of Labor Statistics will include hiring and referral bonuses in a one-time boost.
ECI ``has become the height of confusion'' because of the one-time inclusion of hiring and referral bonuses, said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi in New York. He estimates that one-time items may nudge the index between 0.2% and 0.3% higher for the quarter.
``Theoretically, the market should just focus on the wage data part of the report,'' Rupkey said.
On Friday, GDP is expected to continue to slow from the strong pace in the first and fourth quarter, with the median estimate calling for a 3.5% increase, compared with a 5.5% rise in the first quarter.
Earlier Wednesday, the Treasury announced it would buy back $1.0 billion of Treasuries in six issues through the 2019-2021 maturities on Thursday, with coupons ranging from 7.875% to 8.875%. The announced buybacks were smaller than expected, disappointing some market players who expected a $1.5 billion total.
Also Wednesday, the Treasury sold $10.0 billion in two-year notes at a 6.284% stop, with 58% of the bids taken at about the high. The bid-to-cover ratio at 2.63-to-one.
At 3:00 p.m. EDT Wednesday, the 30-year bond was trading at a yield of 5.884%, compared with 5.802% at 4 p.m. EDT Tuesday, while the 10-year note was at a yield of 6.029% vs. 6.025% late Tuesday.
SOURCE: Market News International
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