Oh yeah - totally tapped out
""Reuters Finance News
Treasuries Hit Hard on Retail Sales Surge
Feb 13 9:44am ET
By Eric Burroughs
NEW YORK (Reuters) - U.S. Treasuries tumbled on Wednesday, driving yields to two-week highs, after a report showed core retail sales posted their biggest monthly gain in nearly two years, fanning worries that an economic rebound will prompt the Federal Reserve to raise interest rates as soon as May.
Treasuries have been trapped in a range during recent months, waiting for more clues about the strength and timing of a recovery, with the Fed expected to keep rates steady at 40-year lows.
But the evidence of vigorous consumer spending despite the recession's grip stoked bond market fears the economy is in better shape than expected. Futures on the federal funds rate priced in a roughly 70 percent chance that the central bank will raise rates by a quarter-point in May.
In the past two sessions yields on two-year notes, the most sensitive to expectations for interest rates, jumped to 3.10 percent, up sharply from 2.92 percent on Friday.
"To some extent the bond market's trading pattern has not been resolved of late. This might provide some resolution, and I think it is going to be resolved in terms of higher yields," said Alan Ruskin, research director at 4Cast Ltd.
"This is the kind of number that is consistent with the U.S. economy picking up somewhat faster than people anticipated," he said.
Short-term Treasuries bore the brunt of the selling after the Commerce Department reported that January retail sales, excluding autos, posted a solid 1.2 percent rise, much higher than forecasts for a 0.4 percent gain and the largest since March 2000.
December sales ex-autos were revised up sharply to a 0.7 percent gain from an original 0.1 percent dip.
"It indicates that the economy is moving in the right direction. We definitely need consumers as part of any recovery, as it appears spending by businesses will lag," said Oscar Gonzalez, an economist at John Hancock Financial Services in Boston.
January retail sales fell 0.2 percent after an upwardly revised 0.2 percent gain in December, but the decline in the headline figure was due to slower auto sales after the big boom late last year fueled by zero-percent financing. Market players focused on the ex-autos figure.
Throughout the first U.S. recession in a decade, economists have been surprised by the resilience of consumer spending, which was buoyed by mortgage refinancings, tax rebates and income growth. Consumer spending powers two-thirds of U.S. economic activity.
The strong data gave stock futures an immediate lift, also putting pressure on short-term Treasury notes that had benefited from recent worries about corporate accounting and credit quality. March futures on the S&P 500 index <.SPX> extend early gains to rise 4 points, pointing to gains at the opening bell.
Short-term Treasuries were pounded Tuesday as bond investors dumped those maturities in favor of stocks and new corporate debt issues, while also reversing the recent safe-haven purchases.
The soothing of worries in credit markets and signs of economic recovery have thawed a chill in corporate bond issuance, luring investors away from risk-free government securities.
A combined $11 billion of agency and investment-grade corporate debt was sold yesterday, meeting solid demand that prompted GE Capital, the finance arm of General Electric Co., to more than double its sale to $3.5 billion.
Still on tap this week is General Mills' offering of $3 billion of five- and 10-year notes, expected to be sold Wednesday.
At 9:15 a.m. EST (1415 GMT), two-year Treasury notes were down 8/32 at 99-23/32, as their yield, which moves inversely to price, rose to 3.14 percent. Five-year notes were down 14/32 at 96-7/32, yielding 4.39 percent.
Benchmark 10-year notes were down 20/32 at 98-18/32, yielding 5.05 percent. And 30-year bonds were down 25/32 at 98-2/32, yielding 5.51 percent. March 10-year futures were down 19/32 at 105-23/32." |
