U.S. Treasuries dip in profit taking, thin volume
Fri Aug 19, 2005 10:23 AM ET
By Chris Reese
NEW YORK, Aug 19 (Reuters) - U.S. Treasury debt prices fell on Friday on profit-taking, erasing about half of Thursday's gains, as thin volume exacerbated downward price moves.
"It is very illiquid and that is definitely going to make any move become bigger than it otherwise would be on a normal trading day," said Adam Brown, Barclay Capital's co-head of U.S. Treasury trading, adding that "there definitely could be some small profit-taking."
The 10-year benchmark note was trading 8/32 lower in price early on Friday to yield 4.24 percent, up from 4.21 percent on Thursday.
Traders were hard pressed to find a reason for the benchmark bond's 16/32 move upwards on Thursday, particularly given a surprising jump in the Philadelphia Federal Reserve's index of Mid-Atlantic factory activity.
Little was seen on the horizon to break yields out of current ranges, with some possible action from a speech from Fed Chairman Alan Greenspan next week and the next government jobs report in early September.
With little in the way of significant data set for Friday, traders expected the limited profit taking to hold sway through the day.
Yields have generally been trending lower since Aug. 9, when the Federal Reserve bank raised the federal funds rate by a quarter percentage point to 3.50 percent, as expected.
While some traders have been at a bit of a loss to explain the higher prices, given that the Fed is widely expected to continue its steady campaign of raising interest rates, others say it comes down to a simple market dynamics.
"U.S. investors are not leaving the country to buy foreign bonds, and foreigners do tend to buy a lot of U.S. bonds," said one trader who did not wish to be identified. "It's pure supply and demand."
Five-year notes (US5YT=RR: Quote, Profile, Research) were trading 6/32 lower for a yield of 4.11 percent from 4.07 percent on Thursday. The 30-year bond (US30YT=RR: Quote, Profile, Research) was off 16/32 to yield 4.45 percent, compared with 4.42 percent on Thursday.
Two-year notes (US2YT=RR: Quote, Profile, Research) were down 2/32 to yield 4.04 percent from 4.00 percent.
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