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Treasurys slide after economic reports
Hope dims for half-point Fed interest-rate cut
By Rachel Koning, CBS.MarketWatch.com
Last Update: 11:17 AM ET Jan 12, 2001
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NEW YORK (CBS.MW) - Having spent much of the week in the red,
Treasury securities weakened further on Friday as hopes for another
aggressive Fed interest-rate cut were dashed by stronger-than-expected
economic reports.
December retail sales, expected to reflect a dismal Christmas shopping
season, rose by 0.1 percent when most economists were expecting a
0.4-percent fall. Read more.
The producer price index was flat last month but the core rate, excluding
food and energy, rose by a larger-than-expected 0.3 percent. See full story.
The reports don't change the fact that the economy has moderated
substantially from its pace earlier in the year. Accordingly, the Fed slashed
its key interest rate by 50 basis points in early January.
But analysts said Friday's data show that a soft landing may be attained
without more aggressive action on the part of the central bank. Perhaps, the
Fed can wait to move or will be able to adjust the Fed funds target by a
quarter point.
The Federal funds futures market, a gauge of market sentiment for policy,
indicates 50-percent odds the central bank will knock another half point off
its bank lending target on Jan. 31, the group's next scheduled meeting. Last
week, odds were close to 100 percent for such action and economists at
large banks were calling for aggressive Fed action at the late-January
meeting as well.
The short end of the Treasury market, which is most sensitive to the Fed's
policy, saw the most selling on Friday. A 5-year note lost 20/32 to 103
14/32, with its yield rising 14 basis points to 4.94 percent. A 2-year note
was down 9/32 at 100 14/32 lifting its yield 15 basis points to 4.88 percent.
A benchmark 10-year Treasury note fell 27/32 to 103 31/32, with its yield
($TNX: news, msgs) up 11 basis points at 5.22 percent.
A 30-year bond tumbled a point to 109 7/32, with its yield ($TYX: news,
msgs) up 7 basis points at 5.61 percent.
Rachel Koning is a reporter for CBS.MarketWatch.com.
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