U.S. 10-Year Note Falls; Fed's Guynn Says Rates Won't Stay Low
[Yet another totally stupid headline.
This headline and the entire article is out of context I believe. I am looking for the article now. - Mish]
March 24 (Bloomberg) -- The U.S. Treasury 10-year note fell as Atlanta Federal Reserve Bank President Jack Guynn said monetary policy must not remain accommodative for ``too long.''
Guynn spoke as bond dealers prepared to bid on $26 billion of new two-year notes at 1 p.m. New York time.
Guynn ``said some things that if repeated by other members might signal a shift in current thinking at the Fed,'' said Anthony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York. Fed officials including Chairman Alan Greenspan and Governor Donald Kohn are scheduled to make speeches later this week.
[everybody is looking so hard for this shift they can not sort out the truth. What the F does "too long" mean? How long is that? That could be years. - mish]
At 12:34 p.m. in New York the 4 percent note maturing in February 2014 fell almost 1/8, or $1.25 per $1,000 face amount, to 102 3/8, according to Zions Bancorp. Its yield rose 1 basis point, or 0.01 percentage point, to 3.71 percent.
``As the economy returns to more normal rates of growth, market interest rates should adjust in response to more robust conditions and policy will need to adjust as well,'' Guynn said in a speech. Guynn doesn't vote this year when the central bank sets its benchmark interest rate.
[Once again we have an assumption... an assumption that the economy will remain growing with "robust conditions" and presumably jobs will be created - mish]
Treasuries briefly erased their declines after AFP reported French police found a bomb on France's Paris-Basel rail line, boosting demand for the safety of government debt two weeks after train bombings in Spain killed more than 200 people.
`Good Year'
The expectation the Fed will keep its target for overnight loans between banks, or federal funds, at the current 45-year low of 1 percent until 2005 has emboldened investors to buy higher- yielding debt including Treasuries, lowering yields.
``The bond market is going to have a fairly good year this year because the Federal Reserve is committed to leaving the fed funds rate at 1 percent,'' said Jeffrey Gundlach, a bond fund manager at TCW Group Inc. in Los Angeles.
Treasuries maturing in more than 10 years have returned 6.8 percent this year, including income and price gains, the most among 154 government debt indexes compiled by the European Federation of Financial Analyst Societies.
`Patient' Policy
In their public statements on interest rates Fed policy makers have said slow inflation allows them to be ``patient'' in raising interest rates while waiting for job growth to rebound, even as the economy is expected to grow at the fastest pace since 1984 this year. The goals of monetary policy are full employment and price stability.
Gross domestic product will expand 4.6 percent this year according to the median forecast of 68 economists polled by Bloomberg News. Last week, the Labor Department said core consumer prices were 1.2 percent higher in the 12 months ended in February. The rise compares with 1.1 percent in each of the previous three months, the smallest gain since 1966.
Earlier, Treasuries rose after a government report showed durable goods orders excluding transportation equipment unexpectedly fell last month.
The durable goods report is ``confirmation that the economy is not going gangbusters,'' said Raymond Remy, head of Treasury and agency debt trading in Chicago at Banc One Capital Markets Inc., one of the 23 primary U.S. government securities dealers that trade with the Fed's New York branch. ``The Treasury market is in great shape.''
Mortgage Rates
Excluding transportation equipment, orders declined 0.3 percent in February after increasing 0.6 percent in January, the Commerce Department said. Orders were expected to rise 1 percent, according to the median estimate of 20 economists surveyed by Bloomberg News. Overall, orders for items made to last at least three years rose 2.5 percent after falling 2.7 percent in January.
The decline in Treasury yields has driven mortgage rates to the lowest levels since June, boosting spending related to home purchases and refinancing.
A separate government report today showed sales of new single-family homes unexpectedly rose in February to the fastest pace since August. Sales rose 5.8 percent to a 1.163 million annual rate from a revised 1.099 million rate in January. The median forecast of economists polled by Bloomberg was for a 1.1 million pace.
Note Auction
Treasuries may extend declines as investors shed their existing holdings of debt to accommodate new supply.
The Treasury today will sell $26 billion of new two-year notes at its monthly auction. The securities yielded 1.51 percent in pre-auction trading.
About 88 percent of 56 investors polled by fixed-income research firm Ried, Thunberg & Co. late last week said the note doesn't have value at a yield of 1.50 percent.
A change in the amount of the sale won by so-called indirect bidders including foreign central banks may affect the note's yield, said David Boberski, head of interest-rate strategy at Bear Stearns & Co. in New York, also a primary dealer.
Foreign Participants
Indirect bidders won more than 40 percent of the January and February two-year note sales as the Bank of Japan increased the pace of its purchases of dollars to curb the advance of the yen, which makes Japanese products more expensive in the U.S. From June 2003, when the Treasury began publishing indirect bidder awards, through December, the average award was 35.3 percent.
Every 10 percentage point change in the amount awarded to indirect bidders may move the two-year note's yield 17 basis points in the opposite direction, Boberski said.
``Auctions provide a snapshot of participants in each market, and BOJ purchases crowd out other buyers at auctions and during the regular course of trading,'' Boberski said.
Indirect bidders, which include foreign central banks, bought 45.4 percent of $26 billion of two-year notes sold a month ago, about the same percentage as in January, and up from 30.2 percent in December.
Investors may sell Treasuries in order to buy higher- yielding debt issued by companies. GE Capital Corp., a unit of General Electric Co., plans to sell $3 billion of debt today. Companies sold $7.5 billion of new notes and bonds yesterday, more than double the daily average this year.
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Mish speculation: he is hoping for a good treasury auction and does not want too huge a rally in front of it. Alternative: He does not have a clue.
Mish |
