U.S. Treasuries firm, consumer mood softens
Tue Mar 29, 2005 10:28 AM ET
(Adds consumer data, updates prices)
NEW YORK, March 29 (Reuters) - U.S. Treasury debt prices bounced on Tuesday helped by month-end demand and a soft reading on U.S. consumer confidence, though volumes were again light ahead of more important data due later in the week.
The only release of note was the Conference Board index of consumer confidence which dipped to 102.4 in March from 104.0 the month before. That was a little lower than forecasts, though analysts noted surveys of consumer sentiment and actual spending habits have shown scant correlation in recent years.
The benchmark 10-year Treasury note (US10YT=RR: Quote, Profile, Research) firmed 12/32 in price, recovering all of Monday's losses. Its yield ticked down to 4.59 percent from 4.64 percent, but faced resistance around 4.57 percent. Traders looked for the recent 4.44 percent to 4.70 percent range to hold until inflation figures on Thursday and payrolls on Friday.
While the Conference Board survey found consumers reported jobs were a little harder to get in March, analysts are still confidently expecting a rise of 220,000 or more in payrolls.
Treasuries caught some collateral gains from a rally in Japanese government bonds as a soft set of economic data there sent the Nikkei stock index down 1.6 percent. That, in turn, weighed on U.S. stocks .
The two-year Treasury note (US2YT=RR: Quote, Profile, Research) added 2/32, lowering yields to 3.85 percent from 3.88 percent. Gains were limited ahead of a $24 billion sale of new notes on Wednesday.
The five-year note (US5YT=RR: Quote, Profile, Research) added 6/32, taking yields to 4.29 percent from 4.34 percent. The 30-year bond (US30YT=RR: Quote, Profile, Research) rose 23/32, pushing yields to 4.85 percent from 4.89 percent.
Some funds were buying Treasuries to match the month-end extension in the duration of the benchmark portfolio indices they track -- a regular but temporary phenomenon.
"Overall, the mood remains bearish on bonds given the risk inflation will pick up and force the Fed to keep hiking a lot longer than we first thought," said one trader at a U.S. primary dealer.
"The trader community has built a record short position in Treasuries and the latest client survey shows much of the market is positioned the same way," he added.
The weekly JPMorgan survey of clients showed short positions declined only slightly to 54 percent of respondents from 56 percent, dwarfing the 7 percent that held long positions in Treasuries.
"Of course, being so short already means it could be tough for the market to get yet more short and leaves it vulnerable to a squeeze if any of the coming data fails to meet expectations," said the trader.
In particular, he thought the core personal consumption expenditures price index out Thursday could offer some relief from inflation concerns and perhaps push bond prices higher.
The core PCE index is the Fed's favored measure of inflation and chances were it held at 1.6 percent in February, still well within the central bank's presumed 1.0 percent to 2.0 percent comfort band.