Treasuries rally, yield curve flattest in 4-1/2 yrs
yahoo.reuters.com
Thu Jul 28, 2005 05:18 PM ET
(Updates prices)
By Pedro Nicolaci da Costa
NEW YORK, July 28 (Reuters) - U.S. Treasury debt prices spiked higher on Thursday as investors appeared to decide that a recent sell-off had gone far enough.
The absence of market-moving economic data left inventors tracking yield charts, with 4.25 percent proving strong support for benchmark 10-year notes (US10YT=RR: Quote, Profile, Research) .
Seizing the opportunity, bulls bid prices 15/32 higher, taking yields to the bottom of a recent range at 4.20 percent, just above its 200-day moving average.
Dealers reported buying related to month-end portfolio indexing and purchases from Asia and Europe in long maturities. Volume was light, which may have exaggerated price moves to the upside, traders said.
"All I can see is just continued bottom fishing," said Mary Ann Hurley, senior Treasuries trader in Seattle, Washington, at D.A. Davidson & Co.
Traders also clearly rediscovered a fondness for betting that long-term yields would rise more slowly than those on short-term paper as the Federal Reserve raises its trend-setting federal funds rate.
Known as a flattening of the yield curve, this phenomenon was in full force on Thursday, with the spread between 10- and two-year notes shrinking to 0.23 percentage point -- its narrowest in 4-1/2 years.
"The flattener has worked like a dream today," said Alan Ruskin, research director at 4Cast Ltd.
Two-year note yields (US2YT=RR: Quote, Profile, Research) eased to 3.95 percent from 3.99 percent, while five-year debt (US5YT=RR: Quote, Profile, Research) climbed 8/32 to yield 4.05 percent. The 30-year bond (US30YT=RR: Quote, Profile, Research) rallied 1-5/32 to yield 4.40 percent.
Fed policy-makers have repeatedly said they are puzzled by how little long-term interest rates have reacted to efforts to tighten monetary policy.
Historically, a flat or inverted yield curve has signaled looming troubles for the economy. But Fed officials have dismissed this possibility, repeatedly making optimistic remarks about the future.
They have argued instead that subdued long-term inflation expectations and a glut of global savings looking for a safe investment vehicle are responsible for keeping yields on longer-dated Treasuries in check.
Whatever the reason behind the trend, investors were mostly convinced that the economy grew rapidly in the second quarter.
They would find out exactly how quickly on Friday, when the government releases its first estimate of gross domestic product for the April to June period.
Analysts expect that hefty inventories might have proved a drag on production, but that robust consumption and rising exports might have offset those effects. Median forecasts see GDP expanding at a 3.4 percent rate in the second quarter, down from 3.8 percent in the first.
Investors were too focused on that upcoming data to make much from a modest increase in weekly jobless claims, which rose to 310,000 from 305,000 in the latest survey period. |
