Treasuries slip on NY Fed-driven profit-taking
Thu Dec 15, 2005
By Pedro Nicolaci da Costa
NEW YORK, Dec 15 (Reuters) - U.S. Treasury debt prices slipped on Thursday as a surprising jump in New York State manufacturing activity encouraged investors to take profits on recent gains.
The uptick in factory activity was particularly disconcerting for bond investors now that the Federal Reserve had made clear the future course of monetary policy is largely dependent on economic data.
"The data suggest real activity is quite solid, given the rise in the New York Fed's Empire State Index," said Joseph LaVorgna, chief U.S. fixed-income economist at Deutsche Bank.
Worried that such regional industrial strength might be reflected nationally, traders sent benchmark 10-year notes down 9/32 to yield 4.50 percent, compared with 4.46 percent on Wednesday.
A report on November U.S. consumer prices had only fleeting market impact, with costs excluding food and energy rising in line with Wall Street forecasts.
Government debt had posted solid gains so far this week as investors expressed their enthusiasm at the possibility of an end to Fed rate hikes, signaled through a language change in the central bank's policy statement
But traders appeared to take their foot off the accelerator and push prices lower after the New York Fed said its index of regional manufacturing jumped to 28.74 in December from 22.82 in November.
Analysts were looking next to the Philadelphia Fed's more closely tracked survey, due at noon (1700 GMT), for clues on the health of the industrial sector.
Investors were also leery of inflation excluding energy and food costs, which the government said earlier grew 0.2 percent last month, as forecast, but was expanding at a 2.1 percent year-on-year rate -- above the central bank's presumed comfort range.
A decline in energy prices dragged overall CPI 0.6 percent lower, the largest drop in 56 years. But analysts were largely discounting the fall, given that winter heating needs were boosting crude oil costs once again during December.
Energy prices posted a record 8.0 percent drop as the post-Hurricane Katrina spike faded quickly.
Five-year notes eased 6/32 and were yielding 4.42 percent, while the 30-year bond lost 17/32 and was yielding 4.70 percent.
The two-year note slipped 2/32 and was yielding 4.41, from 4.38 percent.
The number of U.S. workers filing new claims for jobless aid rose 1,000 last week, bucking expectations of a small decline. The figures elicited little market reaction.
At the margins, investors were heartened to learn that their long-standing fear that foreign central banks might lose their interest in Treasuries was so far unfounded.
The latest capital flows data from the Treasury Department showed official foreign purchases of U.S. government debt climbed to $4.9 billion in October from $1.1 billion in September.