Treasuries halt slide on brush with key yield
Thu Oct 20, 2005 10:38 AM ET
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NEW YORK, Oct 20 (Reuters) - U.S. Treasury debt prices lost ground on Thursday, hurt by flows out of bonds to recovering European stock markets, but halted their fall as they brushed up against the key 4.5 percent yield benchmark on the 10-year U.S. note.
Weekly first-time jobless claims came in much as expected, and had little effect on the bond market. Also, leading economic indicators came in a bit lower than expected in September, but also had little effect on the bond market.
Traders said the market will look with greater interest at a fresh round of Federal Reserve speakers Thursday as well as the Philadelphia Fed's business activity survey at 12 p.m. (1600 GMT).
Jobless claims were a seasonally adjusted 355,000 in the week ended Oct. 15, below economists' expectations of 368,00 and the 390,000 claims in the prior week.
September leading economic indicators fell 0.7 percent to 136.8, more than the 0.5 percent decline economists expected and the prior month's 0.2 percent decline.
"The jobless claims didn't really have much of an impact, but prices have been able to move off the lows," said John Canavan, a bond market analyst with Stone & McCarthy Research Associates in Princeton, New Jersey.
Early gains in European stock markets on Thursday followed big losses in the previous session that had bolstered the appeal of safe-haven bonds and had led U.S. Treasuries higher.
But with the U.S. stock market opening lower on Thursday, the bond market's focus before the Philadelphia Fed data was likely to move back to technical factors surrounding the 10-year note.
"The front really hasn't done much. The long end has led a little bit of the move off the lows," Canavan said.
Indeed, traders and analysts say the benchmark 10-year note's technical travails around the 4.50 percent yield level has been a big market dynamic in the last week.
Benchmark 10-year notes were 3/32 lower for a yield of 4.48 percent after briefly hitting that 4.50 percent level early Thursday. Benchmark yields ended the day on Wednesday at 4.46 percent.
Much of the selling in the last months, which brought two-year yields to 4-1/2-year highs and 10-year yields to six-month highs, came to an abrupt halt when the benchmark note failed to move definitively above that 4.50 percent level.
The 4.50 percent level is part of a trend line that connects highs of 4.91 percent in May 2004 and 4.69 percent in March of this year. Any decisive move above 4.50 percent would likely propel rates to higher levels, technical analysts said.
But many traders say that energy-related inflationary pressures that the Fed has emphasized so much in the last several weeks is likely to keep downward pressure on bond prices.
"In recent days there was some consolidation of recent losses. (But) we still have somewhat of a bearish view on bonds in general," said Bob Maes, fixed-income strategist at KBC.
Two-year notes fell 1/32 to yield 4.26 percent from 4.24 percent on Wednesday.
The five-year note trimmed 3/32 in price for a yield of 4.34 percent after ending the day on Wednesday at 4.32 percent.
The 30-year bond eased 5/32 in price to yield 4.70 percent versus 4.69 percent on Wednesday.
The Philadelphia Fed survey of manufacturing in and around the densely populated mid-Atlantic region, will come out at 12 p.m. (1600 GMT).
Also, two regional Fed presidents are likely to touch on material issue Thursday. Atlanta Fed President Jack Guynn speaks on the economic outlook at 1:30 p.m (1730 GMT), while Richmond Fed President Jeffrey Lacker will speak at 7 p.m. (2300 GMT) on interest rate policy after Fed Chairman Alan Greenspan retires early next year.
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