US Treasuries turn cautious as Fed rate hike looms
Fri Apr 29, 2005 11:01 AM ET
(Adds Chicago, Michigan data, updates prices)
By Wayne Cole
NEW YORK, April 29 (Reuters) - U.S. Treasury debt prices fell on Friday as profit-taking on recent hefty gains dominated trading just a few days before the Federal Reserve is expected to raise interest rates for the eighth time since last June.
The benchmark 10-year Treasury note (US10YT=RR: Quote, Profile, Research) was off a modest 5/32 in price, while yields rose to 4.17 percent after finishing at a 10-week trough of 4.15 percent on Thursday.
Early economic data showed the Fed's preferred measure of inflation crept up to an annual 1.7 percent in March, from 1.6 percent the month before. That was within the Fed's presumed 1.0 percent to 2.0 percent comfort zone, but did nothing to change market expectations for more hikes from the Fed.
Indeed, traders were put on notice by an article from Fed watcher Greg Ip in the Wall Street Journal which asserted the U.S. central bank was more worried about inflation than slowing growth.
That was enough to quash any talk about a near-term pause by the Fed in raising rates and to hit the short end of the Treasury market. The two-year note (US2YT=RR: Quote, Profile, Research) dropped 3/32, taking yields back up to 3.62 percent from 3.56 percent.
The five-year note (US5YT=RR: Quote, Profile, Research) lost 6/32, lifting yields to 3.86 percent from 3.82 percent. The 30-year Treasury bond (US30YT=RR: Quote, Profile, Research) suffered far less, as yields held at 4.49 percent.
With short-dated debt underperforming, the spread between two- and 10-year yields shrank to just 54 basis points -- the lowest reading since early 2001 and a sharp fall from 75 basis points just a couple of weeks ago.
There have also been several reports suggesting the Fed next week will drop its reference to "measured" rate hikes. A few weeks ago such a move might have caused fears the Fed would shift to larger hikes but the recent soft data has convinced many in the market that half-point moves are highly unlikely whether the Fed drops the term "measured" or not.
Other data released on Friday were more mixed.
Figures on consumption showed U.S. real personal spending rose only a muted 0.1 percent in March, while income was up 0.5 percent. The employment cost index also rose a modest 0.7 percent, suggesting little inflationary pressure from that quarter.
"Although real consumer spending was strong it has slowed for two consecutive quarters and finished Q1 with very little momentum," said Steven Wood, chief economist at Insight Economics. "In order to sustain recent strength in real consumer spending, job creation will need to accelerate further."
The final University of Michigan report on consumer confidence showed a steep drop to 87.7, from 92.60 in March, in part due to worries about high gasoline prices.
The Chicago purchasing management survey for April proved stronger. The main activity index pulled back only modestly to a still historically high 65.6 after jumping to 69.2 in March.
New orders and employment remained firm as well, though analysts noted the survey had not shown a close correlation to national activity recently.
Quindi sta fintona è stata alimentata da cosa? Non ci capisco veramente più una fa.va - mi faccio una doccia, apro una bozza di Chianti e inizio a preparare la cena - e che v.d.v.l'c. il crucco ...