Treasuries Up, Auction Easily Absorbed
CHICAGO (Reuters) - U.S. Treasury prices remained slightly higher on Wednesday after results of the latest five-year note auction fell short of high expectations but foreign banks were again active buyers.
Bond prices have rallied for several days in a surge driven by sluggish jobs growth that is likely to keep official interest rates low through year-end.
Treasuries were unshaken by the auction results. The $16 billion in new five-year notes went at a high yield of 2.695 percent with a bid-to-cover ratio of 2.47, down from February's very high 2.84 but above the average of 2.36 from the previous five auctions.
Indirect bidders, which include customers of primary dealers and foreign central banks, fed their appetite for U.S. debt, snapping up some 44 percent of the notes on offer, above February's already high 42 percent.
Heavy interventions in the currency market have left Asian central banks, especially the Bank of Japan, with large amounts of U.S. dollars to invest in Treasuries.
Five-year notes (US5YT=RR: Quote, Profile, Research) slipped 1/32 to yield 2.66 percent, unchanged from late Tuesday.
Many dealers are confident the Fed will keep official rates on hold into 2005 and are positioning themselves accordingly with leveraged bets that have drawn cautionary language from the Fed. Additional buying is also likely from mortgage portfolio managers hedging against home mortgage refinancing.
The latest week's mortgage applications came too soon to fully reflect the sharp drop in rates that started on Friday.
The Mortgage Bankers Association weekly mortgage market index rose 1.2 percent to 889.1 from 878.7 and its refinancing index rose 1 percent as rates fell.
The benchmark 10-year Treasury note (US10YT=RR: Quote, Profile, Research) rose 3/32 for a yield of 3.71 percent, down from 3.73 percent late Tuesday and from near 4.02 percent before Friday's sentiment-changing jobs report.
The 30-year bond (US30YT=RR: Quote, Profile, Research) rose 6/32 for a yield of 4.66 percent, down from 4.67 percent. Two-year Treasuries (US2YT=RR: Quote, Profile, Research) slipped 1/32 to yield 1.51 percent
Earlier, the Commerce Department's report on U.S. trade figures were consistent with low-rate scenarios. The January trade deficit unexpectedly widened to $43.06 billion from a revised $42.68 billion in December. The deficit had been forecast to narrow slightly.
"The bigger than expected deficit will affect GDP forecasts, pulling them down from the current consensus 4.2 percent forecast," said Chris Low, chief economist at FTN Financial.
Also on Wednesday, wholesale inventories for January rose 0.1 percent, less than expected, suggesting less of a boost to GDP growth this quarter from inventory rebuilding.
Still, many forecasters remain upbeat on the economy. The latest monthly Blue Chip Economic Indicators poll forecast the U.S. economy to grow 4.7 percent this year, versus 4.6 percent forecast in February.
[Not to worry... about that last paragrah I bolded, ecomomists upped the GDP forecast - Mish]
However, the survey cautioned that optimism was tied to assumptions about large tax refunds, plus faith that the jobs market will improve -- a scenario that has yet to play out.
[Are these stupid assumptions or what? - mish]
The ABC/Money Magazine weekly index of consumer comfort slipped to -18 from -16 providing further evidence that Friday's soft jobs report was taking its toll among consumers. |
