Thread et al:
This might be a more serious Halloween trick than the rumors of a Microsoft settlement. I don't quite understand a government which has just launched into deficit spending avec big government in response to 9/11 getting rid of one of its basic financing tools. Full disclosure: every time someone in the news says, "bonds rally today blah blah blah," I have to stop and wait for the tumblers to click inside my head, "something pushed the rates down, therefore existing bond principal values went up," and vice versa when the report is the opposite.
DJ Long End Treasurys See Massive Rally On 30-Yr's Demise
31 Oct 16:00
By Michael S. Derby
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The Treasury Department spiked further issuance of the
30-year bond Wednesday, sparking a massive rally in long-dated issues that
augurs lower long-term borrowing costs for business.
At 3:45 p.m EST, the 10-year Treasury note stood at 105 26/32, up 1 6/32 to
yield 4.27%. The 30-year Treasury gained 5 1/32 to 107 18/32, yielding 4.89%.
The five-year price gained 12/32 to a 3.50% yield, while the two-year price
gained 2/32 at a yield 2.41%.
The move to kill the bond happened as part of the scheduled announcement of
the Treasury's quarterly borrowing plans. It said that it would sell $16
billion in five year notes and $7 billion in 10-year notes.
But most important was the news the government would no longer issue 30-year
debt, formally ending what had been the benchmark security of the fixed-income
world.
The move was completely unexpected, and set off the largest one-day price
move in the long bond in years. It pushed the issue's yield toward levels last
seen during the world wide financial crises of 1998. Only this time, the buying
demand is purely being driven by supply and demand technicals.
While the long-term financing fundamentals facing the Treasury market make
the government's move prudent, "I'm sort of surprised that they went ahead and
did it" at this particular refunding cycle, said James Capra, head of Capra
Asset Management in Rye, N.Y.
Capra chairs the Treasury's Borrowing Advisory Committee, an influential
group of selected dealers and investment managers, which has on several
occasions recommended ending issuance of the security.
The Treasury said in comments about its borrowing needs that it expects the
U.S. to rack up a unified budget deficit for fiscal year 2002 and possibly in
2003 as well. However, Peter Fisher, Treasury undersecretary for domestic
finance, saidthe Treasury expects a return to surpluses in the coming years.
"We do not need the 30-year bond to meet the government's current financing
needs, nor those that we expect to face in coming years," Fisher said. |
