This should be seen as On Topic, Stan.
U.S. Treasuries Fall as Troops Take Baghdad and Consumer Confidence Rises
By Vivianne C. Rodrigues
bloomberg.com
New York, April 12 (Bloomberg) -- U.S. Treasuries fell for the fourth week in five as U.S.-led forces toppled Iraqi leader Saddam Hussein's regime and economic reports showed the economy may be poised to accelerate.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price and helps set mortgage rates, ended late Friday at 3.97 percent, up from 3.95 percent a weak earlier and 3.6 percent on March 7. Traders pared their bets that the Federal Reserve will lower interest rates to spur the economy.
``Treasury bonds lost support after a week of very positive news on the war front and some improvement in the economic data,'' said Ken Anderson, who helps manage $65 billion in fixed-income assets at Evergreen Investments in Charlotte.
More signs the economy is strengthening may cause investors to put more money into riskier assets such as stocks and corporate bonds, pushing the 10-year note yield to 4.10 percent in coming weeks, Anderson said. The Standard & Poor's 500 Index is up 2.2 percent this month, while the 10-year note lost 1/3 of a percent.
The 3 7/8 percent note of 2013 fell about 1/4, or $2.50 per $1,000 face amount, to 99 7/32 for the week. The 1 5/8 percent note of 2005 lost 5/32 to 99 31/32 as its yield rose 8 basis points to 1.63 percent. A basis point is 0.01 percentage point.
By yearend, 10-year yields will be ``closer to 5 percent or even above,'' a level not seen since June, said Michael Kastner, who oversees $10 billion at Deutsche Bank Private Banking in New York. ``We've got nothing but good news out of Iraq and that was a relief. I'm positive on the economy,'' he said.
In the past two weeks, Kastner sold longer-term Treasuries for notes maturing in less than four years on expectations interest rates will rise. He is considering buying corporate bonds as sales of company debt picks up, he said.
Declines Accelerate
Bonds declines accelerated Friday after the Commerce Department said March retail sales jumped 2.1 percent, following a 1.3 percent drop in February. The median forecast of economists surveyed by Bloomberg News was for a 0.6 percent gain. The University of Michigan's index of consumer sentiment rebounded this month to 83.2 from a March reading of 77.6.
U.S. and U.K. forces declared Hussein's regime finished 23 days after invading Iraq. The 1991 Gulf War lasted six weeks. In the first 11 days of the war, the 10-year note returned 1.4 percent, as some investors speculated the conflict would be drawn- out conflict and crimp consumer and business spending.
The rise in retail sales ``will reinforce the idea that if consumers were out spending this much they couldn't have been too pessimistic,'' said John Canavan, a fixed-income analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
Paring Bets
Traders are paring their bets that the Federal Reserve will lower its 1.25 percent overnight interbank rate target next month to help revive the economy.
Fed-funds futures, a gauge of expectations for the average overnight rate in a particular month, shows traders see about a 25 percent chance of a quarter-point cut at the May 6 policy meeting, based on the May contract's 1.20 percent yield. The odds are down from 65 percent two weeks ago.
Still, economists have been cutting their forecasts for U.S. growth. The economy will probably expand 2.4 percent this year, down from January's 2.8 percent estimate, according to the latest Blue Chip Economic Indicators survey released this week. The International Monetary Fund said this week the U.S. economy will grow 2.2 percent this year.
Some Support
U.S. government debt may get support as some analysts said the Bank of Japan is buying Treasuries with dollars it purchased in a move to weaken the yen. Japan sold at least 1.2 trillion yen ($10 billion) last month, twice as much as in January and February, to stem the currency's 9 percent gain in the past year.
``All of it goes into the Treasury market,'' said Marshall Gittler, a strategist at Deutsche Bank AG, one of 22 banks that deal directly with the Federal Reserve. ``Where else would it go? Do you think they pile up dollar bills in their vaults?''
The amount of Treasuries held by the Fed on behalf of other central banks rose $2.99 billion to $720.6 billion in the week ended April 9, according to the Fed. The record was $723.2 billion held the week ended March 12.
Last Updated: April 12, 2003 10:18 EDT |
