I Wonder If The Quid Pro Quo For The Cut In Euro Interest Rates Wasn't Some Implicit Promise From AG Concerning Limits On Future Cuts in US Rates.
Treasury's seem to be starting to acknowledge that there will be an end to rate cuts eventually.
Treasurys Slide, Mull End Of Fed Easing Cycle On Horizon
05/10/2001
Dow Jones News Services
(Copyright © 2001 Dow Jones & Company, Inc.)
By John Parry
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Sentiment in the U.S. government securities market shifted palpably Thursday as market participants started to presage the end of the Federal Reserve's rate-cutting cycle on the horizon.
Treasurys prices tumbled across the curve, with longer maturities slumping most as bond traders mulled expectations of smaller-than-previously-expected U.S. budget surpluses going forward.
At 3:45 p.m. EDT (1945 GMT) the 10-year Treasury, a de facto benchmark, was at 97 26/32, down 28/32. Its yield climbed 12 basis points to 5.29%.
At the longer end of the Treasurys curve, the 30-year Treasury was at 94 21/32, down 1 5/32. Its yield rose eight basis points to 5.75%.
Among shorter Treasurys maturities, the yield on the two-year note climbed nine basis points to 4.16%, while the yield on the five-year note also climbed nine basis points to 4.78%. Bond yields and prices move inversely to each other.
Meanwhile in Chicago, the 30-year bond futures contract for June delivery settled 1 4/32 lower at 101, with the 10-year June bond futures contract down 25/32 at 104-12.
The stage for Thursday's price action in the U.S. Treasurys market was set by a 25-basis-points rate cut from the European Central Bank, which surprised traders, and the same from the Bank of England, which didn't. Partly as a result, Treasurys market participants focused more sharply on when the Fed might stop cutting rates, going forward.
"The general view is that perhaps the Federal Reserve is nearing the end of its interest rate cycle," said Gemma Wright, director of market strategy at Barclays Capital in New York.
The two-year Treasury note's yield hasn't been able to break below 4.0% of late, and signs of resistance at that key level are one indication the market may be anticipating the turn of the cycle, Wright added.
Short-dated Treasurys yields could reach their nadir, anticipating the end of the Fed's easing cycle as soon as June, when "we are going to get to the point where the (Treasurys) market will think we are getting darn close to the last rate cut by the Fed and when the market believes we are at the end of the easing cycle," said Larry Hatheway, managing director of global asset allocation at UBS Warburg in Stamford, Conn.
In addition, remarks by Federal Reserve Board Chairman Alan Greenspan earlier Thursday brought the issue of smaller than previously anticipated budget surpluses to the forefront of Treasurys market participants' minds, fixed income strategists said.
Greenspan reiterated his support for tax cuts as a way to "phase-in" a federal government budget surplus.
"I thought a tax cut was desirable...at that time, and I still do," Greenspan said. The Fed chairman made his comments during a question-and-answer session after a speech before the Chicago Federal Reserve Bank's annual conference on bank structure and competition.
Longer maturities of Treasurys are among the most sensitive to fiscal plans, which will reduce the size of budget surpluses and perhaps lead to bigger-than-expected issuance of longer-dated U.S. government securities.
Consequently, "there is a growing sentiment that the best" performance of longer-dated Treasurys "is behind us," said Kevin Flanagan, fixed-income strategist at Morgan Stanley Dean Witter in New York.
The Fed has already eased interest rates aggressively with the aim of stimulating economic growth, while in addition, "with tax cuts coming into the pipeline, investors are discounting (economic) recovery this year and next," Flanagan added. That outlook was weighing on Treasurys prices Thursday. Furthermore, any signs of resilience in key economic reports for release Friday could hurt Treasurys prices more, strategists said.
|
