Fleursdumal
फूल की बुराई
US Treasuries lower ahead of Fed minutes release
(Updates prices, adds details)
By Wayne Cole
NEW YORK, Jan 4 (Reuters) - Short-term U.S. Treasury yields rose to their highest levels in over two years on Tuesday as caution dominated before the Federal Reserve releases minutes of its Dec. 14 policy meeting later in the session.
In an effort to be more transparent, the release has been brought forward to 2 p.m. EST (1900 GMT) on Tuesday so that the minutes are out before the next policy meeting on Feb. 1. The shift means the market will be more sensitive to any hints of a change in tone, either on the pace of future rate hikes or the outlook for inflation.
So far, Fed officials have shown no sign of pausing on rates and the futures market <0#FF:> has priced in quarter-percentage point hikes at its February and March meetings.
"The minutes are likely to affirm a steady measured approach to removing accommodation that leaves the door wide open to rate hikes at the next two meetings," said Alan Ruskin, research director at 4CAST.
Investors have responded by borrowing short and buying longer-dated debt, believing the latter will outperform as the Fed's policy tightening restrains future inflation.
The divergence has flattened the yield curve, shrinking the spread between two- and- 10-year notes to 110 basis points, a 3-1/2-year low and a major chart barrier.
At midday on Tuesday, yields on the benchmark 10-year Treasury note <US10YT=RR> had risen to 4.23 percent from 4.22 percent late Monday. Yields on two-year notes <US2YT=RR> climbed to 3.13 percent from 3.10 percent, near the highest levels since mid-2002.
"Many people were looking for the curve to steepen near-term, what with all the supply coming in the next two months," said one trader at a U.S. primary dealer.
The government auctions two- and five-year notes and 10- and 20-year TIPS this month ahead of the quarterly refunding in February.
"Instead, flatteners are all the rage again and the spread's testing big resistance at 110 basis points," he noted. "The risk is that the Fed signals greater concern about inflation going forward; that could hurt the long end."
That risk saw the 30-year bond <US30YT=RR> shed 15/32 in price, lifting yields to 4.84 percent from 4.81 percent. The five-year note <US5YT=RR> dipped 2/32, taking its yield to 3.65 percent from 3.63 percent.
There was fresh evidence that fund managers remain bearish on the market, as they were for much of last year. The latest JPMorgan dealer survey showed long positions little changed at just 5 percent last week while short positions climbed to 50 percent from 44 percent the week before.
But with much of the investor community already so short, it makes it harder for bears to engineer a sustained slide in bond prices, and that may be one reason why 10-year yields ended 2004 barely changed despite five Fed rate hikes.
Economic data on Tuesday included a reading on factory orders for November, which showed a firmer-than-expected gain of 1.2 percent.
The details, however, were more mixed. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, were revised to show a 0.8 percent increase from an initial 1.8 percent rise.
Meanwhile, shipments of core capital goods fell 1.8 percent and its this measure that feeds into GDP figures during the quarter.
Two surveys of chain store sales were also out showing a late burst of holiday shopping last week, which added to evidence of still resilient consumer demand.
Analysts also suspect that demand for autos picked up in December. Industry sales figures will be released through Tuesday and forecasts look for sales of North American-made vehicles to hit an annual 13.2 million, up from a revised 12.9 million in November. ((Reporting by Wayne Cole; editing by Gary Crosse; Reuters Messaging: [email protected]; +1-646-223-6278)) ((Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com
* BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com))
---------------- MARKET SNAPSHOT AT 1730 GMT ---------------------
March Eurodollar <EDH5> 97.085 (-0.005)
March T-Bond <USH5> 112-10/32 (- 7/32)
March 10-year note <TYH5> 111-24/32 (- 4/32)
Change vs Current
Nyk yield
Three-month bills <US3MT=RR> 2.295 (+0.07) 2.340
Six-month bills <US6MT=RR> 2.550 (+0.03) 2.609
Two-year note <US2YT=RR> 99-24/32 (- 1/32) 3.127
Five-year note <US5YT=RR> 99-11/32 (- 2/32) 3.648
10-year note <US10YT=RR> 100-3/32 (- 4/32) 4.236
30-year bond <US30YT=RR> 107-26/32 (-16/32) 4.844
(Updates prices, adds details)
By Wayne Cole
NEW YORK, Jan 4 (Reuters) - Short-term U.S. Treasury yields rose to their highest levels in over two years on Tuesday as caution dominated before the Federal Reserve releases minutes of its Dec. 14 policy meeting later in the session.
In an effort to be more transparent, the release has been brought forward to 2 p.m. EST (1900 GMT) on Tuesday so that the minutes are out before the next policy meeting on Feb. 1. The shift means the market will be more sensitive to any hints of a change in tone, either on the pace of future rate hikes or the outlook for inflation.
So far, Fed officials have shown no sign of pausing on rates and the futures market <0#FF:> has priced in quarter-percentage point hikes at its February and March meetings.
"The minutes are likely to affirm a steady measured approach to removing accommodation that leaves the door wide open to rate hikes at the next two meetings," said Alan Ruskin, research director at 4CAST.
Investors have responded by borrowing short and buying longer-dated debt, believing the latter will outperform as the Fed's policy tightening restrains future inflation.
The divergence has flattened the yield curve, shrinking the spread between two- and- 10-year notes to 110 basis points, a 3-1/2-year low and a major chart barrier.
At midday on Tuesday, yields on the benchmark 10-year Treasury note <US10YT=RR> had risen to 4.23 percent from 4.22 percent late Monday. Yields on two-year notes <US2YT=RR> climbed to 3.13 percent from 3.10 percent, near the highest levels since mid-2002.
"Many people were looking for the curve to steepen near-term, what with all the supply coming in the next two months," said one trader at a U.S. primary dealer.
The government auctions two- and five-year notes and 10- and 20-year TIPS this month ahead of the quarterly refunding in February.
"Instead, flatteners are all the rage again and the spread's testing big resistance at 110 basis points," he noted. "The risk is that the Fed signals greater concern about inflation going forward; that could hurt the long end."
That risk saw the 30-year bond <US30YT=RR> shed 15/32 in price, lifting yields to 4.84 percent from 4.81 percent. The five-year note <US5YT=RR> dipped 2/32, taking its yield to 3.65 percent from 3.63 percent.
There was fresh evidence that fund managers remain bearish on the market, as they were for much of last year. The latest JPMorgan dealer survey showed long positions little changed at just 5 percent last week while short positions climbed to 50 percent from 44 percent the week before.
But with much of the investor community already so short, it makes it harder for bears to engineer a sustained slide in bond prices, and that may be one reason why 10-year yields ended 2004 barely changed despite five Fed rate hikes.
Economic data on Tuesday included a reading on factory orders for November, which showed a firmer-than-expected gain of 1.2 percent.
The details, however, were more mixed. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, were revised to show a 0.8 percent increase from an initial 1.8 percent rise.
Meanwhile, shipments of core capital goods fell 1.8 percent and its this measure that feeds into GDP figures during the quarter.
Two surveys of chain store sales were also out showing a late burst of holiday shopping last week, which added to evidence of still resilient consumer demand.
Analysts also suspect that demand for autos picked up in December. Industry sales figures will be released through Tuesday and forecasts look for sales of North American-made vehicles to hit an annual 13.2 million, up from a revised 12.9 million in November. ((Reporting by Wayne Cole; editing by Gary Crosse; Reuters Messaging: [email protected]; +1-646-223-6278)) ((Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com
* BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com))
---------------- MARKET SNAPSHOT AT 1730 GMT ---------------------
March Eurodollar <EDH5> 97.085 (-0.005)
March T-Bond <USH5> 112-10/32 (- 7/32)
March 10-year note <TYH5> 111-24/32 (- 4/32)
Change vs Current
Nyk yield
Three-month bills <US3MT=RR> 2.295 (+0.07) 2.340
Six-month bills <US6MT=RR> 2.550 (+0.03) 2.609
Two-year note <US2YT=RR> 99-24/32 (- 1/32) 3.127
Five-year note <US5YT=RR> 99-11/32 (- 2/32) 3.648
10-year note <US10YT=RR> 100-3/32 (- 4/32) 4.236
30-year bond <US30YT=RR> 107-26/32 (-16/32) 4.844
