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Treasuries lower after ISM services data
Mon Dec 5, 2005 10:49 AM ET
(Adds ISM data, comments, updates prices)
NEW YORK, Dec 5 (Reuters) - U.S. Treasury debt prices were stuck at lower levels on Monday after a November survey on the huge U.S. services sector came in much as expected, offering little to alter the interest rate outlook.
Prices were down in early trading, tracking losses in Asian and European bond markets following strong regional economic data. Bond prices were also hurt by selling ahead of U.S. corporate bond deals this week.
The Institute for Supply Management's non-manufacturing survey came in at 58.5 for November, just shy of economists' expectations of 59.0 and a bit below the October result of 60.0, though still showing solid growth.
Benchmark 10-year Treasury notes (US10YT=RR: Quote, Profile, Research) were 10/32 lower in price for a yield of 4.56 percent versus 4.52 percent on Friday.
Two-year notes (US2YT=RR: Quote, Profile, Research) slipped 2/32 to yield 4.47 percent, compared with 4.43 percent on Friday.
Five-year notes(US5YT=RR: Quote, Profile, Research) eased 5/32 to yield 4.49 percent, compared with 4.45 percent on Friday. The 30-year bond (US30YT=RR: Quote, Profile, Research) shed 21/32 to yield 4.76 percent from 4.72 percent on Friday.
The ISM services data was well above the 50 threshold that separates growth from contraction and also reflected robust job growth, as well as a benign reading on prices.
"Economic momentum is continuing. As long as we see evidence that inflation remains contained, at some point soon we would expect the Fed to stop raising interest rates," said Patrick Fearon, senior economist at A.G. Edwards and Sons in St. Louis.
Still, the data did little to alter the immediate rate outlook.
The next key event for investors is the Federal Reserve's policy meeting on Dec. 13, with the market widely expecting a quarter-percentage-point increase in the federal funds rate to 4.25 percent. Traders also forecast another rate increase in January, which would bring the rate banks charge each other for overnight loans to 4.5 percent.
Less clear is whether the Fed will raise rates again in March.
The Fed has raised official short-term interest rates 12 times in about the last 18 months, lifting the fed funds rate to 4.00 percent from 1.00 when it started its campaign to tighten credit in June 2004.
Data on Monday showed Japanese companies raised spending on plants and equipment in the July-September quarter, underscoring firm domestic demand and bolstering views that Japanese gross domestic product growth will be revised higher this week.
Strong economic data often imply that other assets classes, like stocks, will perform well, dampening interest in bonds.
Selling overnight was also in part related to euro zone data showing businesses there grew at the fastest pace in 16 months in November.
"They (went down) and we're going with them," said Alan De Rose, a bond trader at CIBC World Markets in New York, referring to weakness in Japanese and European bond markets that then spread to the United States.
Dealers were also selling Treasuries in preparation for a number of corporate bond deals early this week worth upward of $2 billion. Companies issuing bonds often sell Treasuries to protect themselves against the possibility of having to pay bondholders higher coupon rates.
© Reuters 2005. All Rights Reserved.
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