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Fed-watch keeps Treasuries at bay despite ISM drop
Mon May 2, 2005 04:09 PM ET
(Adds comments, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, May 2 (Reuters) - Treasury debt prices inched higher on Monday on a report that U.S. manufacturing growth slowed, but a looming Federal Reserve meeting prevented traders from buying bonds wholeheartedly.
The decline in the pace of April factory activity reinforced talk of an economic slowdown, but did little to alter expectations of another quarter-percentage point interest rate hike from the U.S. central bank at its Tuesday meeting.
The increase would bring overnight lending costs between banks to 3 percent.
As investors awaited the Fed's decision, benchmark 10-year notes (US10YT=RR: Quote, Profile, Research) crawled 3/32 higher for a yield of 4.20 percent, just below Friday's closing level. Two-year notes (US2YT=RR: Quote, Profile, Research) added 1/32 to yield 3.64 percent, compared with 3.66 percent on Friday.
The Institute for Supply Management's index of business activity dropped to 53.3 in April, below forecasts and the lowest reading since July 2003. Prices, a major concern for fixed-income investors, retreated a bit but remained at high levels.
"The prices paid is still way up there, inflation is still running a little hot, enough that the Fed will continue to raise interest rates," said Mark Vitner, senior economist at Wachovia Securities.
Boding poorly for those betting on a strong payrolls report on Friday, the ISM employment index dipped to 52.3 from 53.3. Median Wall Street forecasts currently point to a gain of about 170,000 jobs in April, compared with March's disappointing 110,000.
In the belly of the curve, five-year note (US5YT=RR: Quote, Profile, Research) yields drifted 2/32 higher to yield 3.88 percent from 3.89 percent. At the very long end, the 30-year Treasury bond (US30YT=RR: Quote, Profile, Research) was flat for a yield of 4.52 percent.
Two-year yields got as low as 3.48 percent last week but could not sustain such levels given expectations the Fed will keep raising overnight borrowing costs.
Many in the market also suspect the central bank will drop its commitment to being "measured" in its monetary tightening, although that pledge had already lost some of its weight since policy-makers made clear the term was flexible enough to include various courses of action.
"The FOMC meeting is the key of the week, with speculation high that 'measured' will go and the inflation warning will stay," said Richard Gilhooly, senior fixed-income market strategist at BNP Paribas.
Adjusting to the prospect of higher overnight rates, short-term Treasury yields had backed off a low of 3.48 percent, even as longer-term securities hovered near 10-week lows.
The discrepancy has helped further shrink the spread between 10- and two-year note yields to a four-year low of 55 basis points last week. Still, the flattening trend appeared to have abated on Monday, with spreads inching back to 56.
Yields on longer-dated debt have remained under pressure by speculation that economic growth may be on the verge of a soft patch.
Mon May 2, 2005 04:09 PM ET
(Adds comments, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, May 2 (Reuters) - Treasury debt prices inched higher on Monday on a report that U.S. manufacturing growth slowed, but a looming Federal Reserve meeting prevented traders from buying bonds wholeheartedly.
The decline in the pace of April factory activity reinforced talk of an economic slowdown, but did little to alter expectations of another quarter-percentage point interest rate hike from the U.S. central bank at its Tuesday meeting.
The increase would bring overnight lending costs between banks to 3 percent.
As investors awaited the Fed's decision, benchmark 10-year notes (US10YT=RR: Quote, Profile, Research) crawled 3/32 higher for a yield of 4.20 percent, just below Friday's closing level. Two-year notes (US2YT=RR: Quote, Profile, Research) added 1/32 to yield 3.64 percent, compared with 3.66 percent on Friday.
The Institute for Supply Management's index of business activity dropped to 53.3 in April, below forecasts and the lowest reading since July 2003. Prices, a major concern for fixed-income investors, retreated a bit but remained at high levels.
"The prices paid is still way up there, inflation is still running a little hot, enough that the Fed will continue to raise interest rates," said Mark Vitner, senior economist at Wachovia Securities.
Boding poorly for those betting on a strong payrolls report on Friday, the ISM employment index dipped to 52.3 from 53.3. Median Wall Street forecasts currently point to a gain of about 170,000 jobs in April, compared with March's disappointing 110,000.
In the belly of the curve, five-year note (US5YT=RR: Quote, Profile, Research) yields drifted 2/32 higher to yield 3.88 percent from 3.89 percent. At the very long end, the 30-year Treasury bond (US30YT=RR: Quote, Profile, Research) was flat for a yield of 4.52 percent.
Two-year yields got as low as 3.48 percent last week but could not sustain such levels given expectations the Fed will keep raising overnight borrowing costs.
Many in the market also suspect the central bank will drop its commitment to being "measured" in its monetary tightening, although that pledge had already lost some of its weight since policy-makers made clear the term was flexible enough to include various courses of action.
"The FOMC meeting is the key of the week, with speculation high that 'measured' will go and the inflation warning will stay," said Richard Gilhooly, senior fixed-income market strategist at BNP Paribas.
Adjusting to the prospect of higher overnight rates, short-term Treasury yields had backed off a low of 3.48 percent, even as longer-term securities hovered near 10-week lows.
The discrepancy has helped further shrink the spread between 10- and two-year note yields to a four-year low of 55 basis points last week. Still, the flattening trend appeared to have abated on Monday, with spreads inching back to 56.
Yields on longer-dated debt have remained under pressure by speculation that economic growth may be on the verge of a soft patch.
ho chiuso l'australiano troppo presto ... me lo vedo bel bello a .7747 adesso ... vabbè ... lo aspetto più su ...
- temo che per oggi ci sia poco da fare, si aspetta il FOMC, poi la palla passa ai payrolls di venerdi (avete letto, l'attesa è per 170.000) - quindi esco a cercare dei libri di cucina, che mi sa che non mi perdo nulla - a più tardi 
