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US Treasuries slammed, yields spike to 7-mth peaks
Wed Mar 9, 2005 08:48 AM ET
NEW YORK, March 9 (Reuters) - U.S. Treasuries prices dived on Wednesday, taking benchmark yields to seven-month highs, as technical selling swept the market after a major chart barrier snapped.
The benchmark 10-year note (US10YT=RR: Quote, Profile, Research) slid 22/32 in price, lifting yields to 4.49 percent from 4.395 percent late on Tuesday. The sudden spike cracked previous peaks at 4.42 percent and took yields to their highest reading since August. Chart watchers were now looking for a rise to the 4.53/55 percent area.
Traders could offer no single reason for the move, just as on Tuesday when prices fell sharply, but the uncertainty itself was bearish. Much of the selling came from leveraged speculators seeking to break technical triggers and some dealers also heard talk of sales from Asian central banks.Lurking in the background were worries about incipient inflation given sky high commodity prices, rising oil, a falling dollar, a tightening labor market and a U.S. economy growing above trend.
"This is looking like a watershed for the market here," said Sadakichi Robbins, head of global fixed-income trading at Bank Julius Baer. "The clear break of the range augers much higher yields and could well force convexity hedging from the mortgage guys."
"A lot of things were lining up. Obviously the technical selling but also profit-taking on curve flatteners, the revival of an inflation premium, uncertainty over the Fed, upward revisions to growth forecasts -- it all piled up until something broke," he added.
Much of the pain was felt in longer-dated issues, which had outperformed in recent weeks, and flattened the yield curve markedly. Reversing that trend, the 30-year bond (US30YT=RR: Quote, Profile, Research) dropped 1-15/32 in price, lifting yields to 4.81 percent from 4.71 percent late Tuesday and lows around 4.35 percent just a month ago.
The spread between two- and 10-year yields widened a hefty five basis points to 83 basis points, steepening the yield curve after several weeks of a flattening trend.
Yields on the two-year note (US2YT=RR: Quote, Profile, Research) rose a relatively modest three basis points to 3.65 percent. That is still up over 50 basis points so far this year and is expected to head much higher as the market sees no end to Federal Reserve rate hikes.
Futures markets (0#ED:: Quote, Profile, Research) also sold off on Wednesday and now see a greater chance of fed funds reaching 4 percent by year-end -- a long way from the current 2.50 percent.
Dealers were also inclined to cheapen prices into an auction of $15 billion in five-year paper late on Wednesday, just in case a shortfall of private demand leaves the Street holding most of the paper.
The current five-year note (US5YT=RR: Quote, Profile, Research) slipped 8/32, taking its yield to 4.11 percent from 4.05 percent late Tuesday. That was its highest level since June last year and, as such, just might attract decent demand at the auction.
Last month's five-year sale drew bids for a healthy 2.53 times the amount on offer while indirect bidders, the class that includes foreign central banks, took a respectable 45 percent of the issue.
Wed Mar 9, 2005 08:48 AM ET
NEW YORK, March 9 (Reuters) - U.S. Treasuries prices dived on Wednesday, taking benchmark yields to seven-month highs, as technical selling swept the market after a major chart barrier snapped.
The benchmark 10-year note (US10YT=RR: Quote, Profile, Research) slid 22/32 in price, lifting yields to 4.49 percent from 4.395 percent late on Tuesday. The sudden spike cracked previous peaks at 4.42 percent and took yields to their highest reading since August. Chart watchers were now looking for a rise to the 4.53/55 percent area.
Traders could offer no single reason for the move, just as on Tuesday when prices fell sharply, but the uncertainty itself was bearish. Much of the selling came from leveraged speculators seeking to break technical triggers and some dealers also heard talk of sales from Asian central banks.Lurking in the background were worries about incipient inflation given sky high commodity prices, rising oil, a falling dollar, a tightening labor market and a U.S. economy growing above trend.
"This is looking like a watershed for the market here," said Sadakichi Robbins, head of global fixed-income trading at Bank Julius Baer. "The clear break of the range augers much higher yields and could well force convexity hedging from the mortgage guys."
"A lot of things were lining up. Obviously the technical selling but also profit-taking on curve flatteners, the revival of an inflation premium, uncertainty over the Fed, upward revisions to growth forecasts -- it all piled up until something broke," he added.
Much of the pain was felt in longer-dated issues, which had outperformed in recent weeks, and flattened the yield curve markedly. Reversing that trend, the 30-year bond (US30YT=RR: Quote, Profile, Research) dropped 1-15/32 in price, lifting yields to 4.81 percent from 4.71 percent late Tuesday and lows around 4.35 percent just a month ago.
The spread between two- and 10-year yields widened a hefty five basis points to 83 basis points, steepening the yield curve after several weeks of a flattening trend.
Yields on the two-year note (US2YT=RR: Quote, Profile, Research) rose a relatively modest three basis points to 3.65 percent. That is still up over 50 basis points so far this year and is expected to head much higher as the market sees no end to Federal Reserve rate hikes.
Futures markets (0#ED:: Quote, Profile, Research) also sold off on Wednesday and now see a greater chance of fed funds reaching 4 percent by year-end -- a long way from the current 2.50 percent.
Dealers were also inclined to cheapen prices into an auction of $15 billion in five-year paper late on Wednesday, just in case a shortfall of private demand leaves the Street holding most of the paper.
The current five-year note (US5YT=RR: Quote, Profile, Research) slipped 8/32, taking its yield to 4.11 percent from 4.05 percent late Tuesday. That was its highest level since June last year and, as such, just might attract decent demand at the auction.
Last month's five-year sale drew bids for a healthy 2.53 times the amount on offer while indirect bidders, the class that includes foreign central banks, took a respectable 45 percent of the issue.
