Many say the bond guys are smarter than the stock guys... what is their vote? More of the same...
U.S. Treasuries Slide: Greenspan Says Rebound `Well Under Way'
from Bloomberg
By Heather Bandur
New York, March 7 (Bloomberg) -- U.S. Treasuries tumbled, driving 10-year note yields to an eight-month high, after Federal Reserve Chairman Alan Greenspan said an economic rebound is ``well under way.'' His comments boosted expectations the Fed will raise interest rates by midyear.
The benchmark note declined for a sixth day, its longest losing streak since October 2000. The Fed chief revised remarks made to Congress a week ago after better-than-forecast reports on manufacturing, jobs and consumer spending led many investors to conclude the yearlong recession had ended.
``Greenspan is beginning to acknowledge that we are in better shape than he expected, so it is no wonder the bond market is selling off,'' said Jay Mueller, who helps manage $45 billion at Strong Capital Management in Milwaukee.
The 4 7/8 percent note maturing in 2012 lost 1 11/32, or $13.44 per $1,000 face amount, to 97 9/32. Its yield surged 18 basis points to 5.23 percent, the highest on a most actively traded 10-year note since July 12. The 3 percent note maturing in 2004 lost more than 1/4 to 99 6/32, lifting its yield 20 basis points to 3.42 percent. A basis point is 0.01 percentage point.
The 10-year note has lost 2.9 percent in the past six days, including reinvested interest. Its yield jumped 40 basis points.
`Encouraging Signs'
Greenspan altered his twice-yearly assessment of the economy, saying policy makers ``have seen encouraging signs in recent days that underlying trends in final demand are strengthening.'' Last week, he downplayed the rebound's strength, saying the economy was ``close to'' turning around.
In between his two congressional appearances, the government reported factory orders rose for a second month in January. That hadn't happened since the economy slipped into recession early last year.
``There should be no doubt that Mr. Greenspan's view has changed,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``He now believes the economy is turning rather than just approaching the turn.''
Traders sold Eurodollar futures contracts, driving the yield on the December contract up 21 basis points to 3.685 percent. The yield reflects growing expectations the Fed may raise its interest- rate target to 3 percent by the end of the year. The contract is a gauge of three-month interest rates, which are typically 18 to 25 basis points higher than the Fed's target rate for overnight loans between banks, plus a premium for how long in the future the contract settles.
`Neutral' Stance
Greenspan's comments led some analysts, including Christopher Low at First Tennessee Bank, to predict the central bank will change its stance at its March 19 meeting to say the risks facing the economy are balanced between faster inflation and weak growth. The Fed since Dec. 19, 2000, has classified weak growth as the greatest threat to the economy.
``Greenspan expressed the desire to go to a neutral policy tilt back in July of last year, but shied away from it after Sept. 11,'' Low said. ``Now that the expansion has begun,'' it's ``almost certain'' Greenspan will do so, Low said.
Government reports today provided more evidence a recovery is taking hold, adding to the decline in bonds. Initial jobless claims fell 5,000 to 376,000 in the week ended Saturday and worker productivity at manufacturers and retailers grew at a 5.2 percent annual rate in the fourth quarter, a sign companies are ramping up output.
Thirty-year bonds yield 4.56 percent after discounting inflation of 1.1 percent in the 12 months through January. That's up 67 basis points since the end of last year, underscoring how investors are demanding a bigger cushion to protect them against a pickup in inflation that would erode the value of their bonds.
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Best Regards, J.T. |
