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US Treasuries lifted after GM, Ford cut to junk
(Adds GM, Ford downgrades, reaction, updates prices)
By Wayne Cole
NEW YORK, May 5 (Reuters) - U.S. Treasury debt prices popped higher on Thursday, gaining a flight-to-quality bid after Standard and Poor's downgraded the debt of both General Motors Corp. <GM.N> and Ford Motor Co. <F.N> to junk status.
The market had been braced for a GM cut for some time, and yet the speed of S&P's move came as a surprise to many. The move on Ford was even more of a jolt.
"This is big news," said David Ader, interest rate strategist at RBS Greenwich Capital. "People sort of thought it was inevitable, but it's still come sooner than many expected."
Traders said the downgrade hurt GM and Ford's mountain of corporate debt and in turn could widen credit spreads throughout the corporate market. Seeking safety, investors might shift some funds to Treasuries, they said.
The 10-year Treasury note <US10YT=RR> recouped early losses and swung 8/32 higher, lowering yields to 4.16 percent from 4.19 percent. The two-year note <US2YT=RR> jumped 4/32, taking yields to 3.55 percent from 3.62 percent.
"Treasuries have got a pop out of this. Credit and swap spreads are wider and stocks are off, so it makes perfect sense," said Ader.
Even interest rate futures <0#ED:> climbed as some speculated that the credit woes of the auto industry might provide a reason for the Federal Reserve to go more slowly in raising interest rates.
"I'm not sure it really rates as a life-changing event for the Fed; stocks would have to tank for the Fed to get worried," said Ader.
The S&P 500 <.SPX> dropped 0.58 percent following the downgrading, but was off its lows.
The five-year Treasury note <US5YT=RR> added 8/32, taking yields to 3.81 percent from 3.86 percent. The flight to quality bid also rescued the 30-year bond <US30YT=RR> from early losses, and it clawed back to steady at 4.59 percent.
Prices had been suffering as the likely resurrection of the 30-year bond forced some investors to cut back on suddenly unprofitable positions. It had been yielding 4.49 percent before the Treasury staggered the market on Wednesday by saying it might resume issuance of the maturity, which was abandoned in October 2001.
Economic data proved too mixed to offer direction. Annual productivity, or output per hour worked, ran at a higher-than-expected 2.6 percent last quarter, suggesting the economy had room to grow more quickly without generating great price pressures.
On the other hand, unit labor costs climbed to an annual 2.2 percent and some analysts feared that could lead to an upward revision to the first quarter's implicit price deflator for gross domestic product.
Rounding out the data, initial jobless claims rose to 333,000 last week from 322,000 the previous week and above forecasts of 325,000. The data were a modest blow to those hoping for a strong jobs revival in the April payrolls report, due on Friday.
"Taken collectively, the claims data is bond friendly while the unit labor costs is a solid bond negative, and the mix is sufficiently confusing to make most bond traders sit on their hands and avoid extending positions before the employment report tomorrow," said Alan Ruskin, research director at 4CAST.
Median forecasts are for a 170,000 rise in payrolls, though estimates range from as low as 140,000 to as high as 325,000.
(Adds GM, Ford downgrades, reaction, updates prices)
By Wayne Cole
NEW YORK, May 5 (Reuters) - U.S. Treasury debt prices popped higher on Thursday, gaining a flight-to-quality bid after Standard and Poor's downgraded the debt of both General Motors Corp. <GM.N> and Ford Motor Co. <F.N> to junk status.
The market had been braced for a GM cut for some time, and yet the speed of S&P's move came as a surprise to many. The move on Ford was even more of a jolt.
"This is big news," said David Ader, interest rate strategist at RBS Greenwich Capital. "People sort of thought it was inevitable, but it's still come sooner than many expected."
Traders said the downgrade hurt GM and Ford's mountain of corporate debt and in turn could widen credit spreads throughout the corporate market. Seeking safety, investors might shift some funds to Treasuries, they said.
The 10-year Treasury note <US10YT=RR> recouped early losses and swung 8/32 higher, lowering yields to 4.16 percent from 4.19 percent. The two-year note <US2YT=RR> jumped 4/32, taking yields to 3.55 percent from 3.62 percent.
"Treasuries have got a pop out of this. Credit and swap spreads are wider and stocks are off, so it makes perfect sense," said Ader.
Even interest rate futures <0#ED:> climbed as some speculated that the credit woes of the auto industry might provide a reason for the Federal Reserve to go more slowly in raising interest rates.
"I'm not sure it really rates as a life-changing event for the Fed; stocks would have to tank for the Fed to get worried," said Ader.
The S&P 500 <.SPX> dropped 0.58 percent following the downgrading, but was off its lows.
The five-year Treasury note <US5YT=RR> added 8/32, taking yields to 3.81 percent from 3.86 percent. The flight to quality bid also rescued the 30-year bond <US30YT=RR> from early losses, and it clawed back to steady at 4.59 percent.
Prices had been suffering as the likely resurrection of the 30-year bond forced some investors to cut back on suddenly unprofitable positions. It had been yielding 4.49 percent before the Treasury staggered the market on Wednesday by saying it might resume issuance of the maturity, which was abandoned in October 2001.
Economic data proved too mixed to offer direction. Annual productivity, or output per hour worked, ran at a higher-than-expected 2.6 percent last quarter, suggesting the economy had room to grow more quickly without generating great price pressures.
On the other hand, unit labor costs climbed to an annual 2.2 percent and some analysts feared that could lead to an upward revision to the first quarter's implicit price deflator for gross domestic product.
Rounding out the data, initial jobless claims rose to 333,000 last week from 322,000 the previous week and above forecasts of 325,000. The data were a modest blow to those hoping for a strong jobs revival in the April payrolls report, due on Friday.
"Taken collectively, the claims data is bond friendly while the unit labor costs is a solid bond negative, and the mix is sufficiently confusing to make most bond traders sit on their hands and avoid extending positions before the employment report tomorrow," said Alan Ruskin, research director at 4CAST.
Median forecasts are for a 170,000 rise in payrolls, though estimates range from as low as 140,000 to as high as 325,000.
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... vedremo, io sono comunque scettico, ma è anche vero che il mio modo di pensare non è compatibile con i comportamenti del mercato 
- scenderà quando lo vorranno far scendere, mettiamola così - buona serata, scappo ai fornelli 
:smile: 
