Treasuries rise, helped by weak data and GM
Thu Oct 27, 2005 11:17 AM ET
(Adds home sales data, quotes; updates prices)
NEW YORK, Oct 27 (Reuters) - U.S. Treasury debt prices rose on Thursday, boosted by weaker-than expected data on durable goods and home sales that stoked concerns about growth but did little to change the interest rate outlook.
The benchmark 10-year note (US10YT=RR: Quote, Profile, Research) , also reflecting concerns about an accounting investigation of General Motors Corp., traded 6/32 higher to yield 4.56 percent, compared with 4.59 percent on Wednesday.
Dealers also said that the market was bouncing back to the upside following three days of selling, much of it mortgage-related, that helped push benchmark yields to their highest level in seven months on Wednesday.
Yields and mortgage rates have moved higher in the last several weeks, largely because the Federal Reserve has clearly signaled it aims to head off any rising inflationary pressure by raising official interest rates.
Traders and analysts generally downplayed Thursday's data and had little doubt the Fed would raise the federal funds rate at its next two or three meetings, including at its upcoming meeting on Nov. 1.
"We're still getting some mixed data because of the impact of the hurricanes, but the underlying economy still looks healthy," said Gary Thayer, chief economist at A.G. Edwards and Sons in St. Louis.
"So I don't think today's data change the Fed's thinking about raising interest rates," he added, referring to reports on September durable goods orders, new homes sales and weekly jobless claims.
Two-year notes (US2YT=RR: Quote, Profile, Research) added 2/32 to yield 4.35 percent versus 4.38 percent on Wednesday.
Five-year notes (US5YT=RR: Quote, Profile, Research) rose 5/32 for a yield of 4.42 percent, compared with 4.46 percent on Wednesday. The 30-year bond (US30YT=RR: Quote, Profile, Research) rose 18/32 and was yielding 4.76 percent, compared with 4.80 percent on Wednesday.
MIXED DATA
Durable goods orders fell 2.1 percent in September, more than the 1.1 percent decline economists expected. But the government revised the August reading upward to positive 3.8 percent from 3.4 percent previously.
The government also said new home sales came in at a 1.222 million unit annualized rate, below economists' expectations of a 1.3 million reading. August sales were revised downward to 1.197 million, meaning that month-on-month, sales actually rose.
Other data on Thursday showed weekly first-time jobless claims falling more than expected to 328,000 in the week ended Oct. 22 versus 356,000 in the prior week. Economists had expected 340,000 claims in the latest survey.
Much of the bond market's early focus was on the Securities and Exchange Commissions's subpoena of GM as part of an accounting probe. The inquiry centers on GM's accounting of pensions and other post-employment benefits and on its deals with parts supplier Delphi Corp.
Anxiety over problems at world's biggest automaker stoked early buying in the bond market, particularly during the Asian trading session, dealers said. The worst fears center on the possibility of GM declaring bankruptcy, though many in the market consider that to be quite improbable.
Traders also said a good deal of Thursday's upside bias was a technical reaction to the sharp selling over the last few days.
Traders reported heavy trading volume on Wednesday related to a mortgage market looking to hedge against slower prepayments that would prevent brokers from reinvesting at higher yields -- a phenomenon known as extension risk.
"It's (many) things driving prices higher. GM is only one, major, factor," said a bond trader in London.
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