gastronomo
Forumer storico
US Treasuries suffer profit-taking on jobs hint
Tue Feb 1, 2005 11:01 AM ET
(Adds ISM data, updates prices)
By Wayne Cole
NEW YORK, Feb 1 (Reuters) - U.S. Treasury debt prices turned mixed on Tuesday as a slight slowdown in U.S. manufacturing activity was balanced by a pickup in hiring plans.
The Institute for Supply Management's activity index eased to 56.4 in January from a revised 57.3 in December. Analysts had looked for a dip to 57.0 and noted new orders slowed more sharply, perhaps dimming the outlook for growth ahead.
But bond bulls were restrained by a near 5-point jump in the employment index to 58.1. There has been little correlation between this measure and actual jobs growth in manufacturing, but the rise might still stir speculation of a healthy January payrolls report, due on Friday.
"The data are marginally positive for bonds. It shows a slight loss of momentum, and new orders are the weakest in quite some time," said Alan Ruskin, research director at 4CAST.
However, after initially rallying on the numbers, investors were quick to take profits and the benchmark 10-year note (US10YT=RR: Quote, Profile, Research) eased 5/32 in price. Its yield ticked up to 4.15 percent from 4.13 percent.
There were no such profits to take in short-term debt, which has underperformed for months, and two-year yields (US2YT=RR: Quote, Profile, Research) held steady at 3.27 percent .
In sum, the data did nothing to change expectations the Federal Reserve will raise interest rates when its two-day policy meeting ends on Wednesday, and the market is still pricing in rates of 3.0 percent by the summer.
"At 56 and change, the economy is strong enough not to stand in the way of the Fed removing accommodation," said Ruskin. "But once extreme accommodation is removed, (the data don't) make a compelling case to tighten much beyond that."
He thought the economic outlook was consistent with rates at 3.0 percent to 3.25 percent, but not the whole hog to neutral, which some economists see closer to 4.0 percent.
Still to come on Tuesday are auto sales for January, which could be supportive for bonds given analysts expect a marked slowdown after a steep, incentive-driven jump in December.
Median forecasts are that sales of North American-made cars slowed to an annual 5.2 million pace in January from 5.95 million the month before, while sales of light trucks hit 7.8 million from 8.69 million.
The five-year Treasury note (US5YT=RR: Quote, Profile, Research) added 1/32 in price, nudging yields down to 3.69 percent from 3.70 percent. At the very long end, the 30-year bond (US30YT=RR: Quote, Profile, Research) ran into some profit-taking after its recent meteoric rally and lost 9/32 in price. Its yield rose to 4.60 percent having finished at 4.59 percent on Monday, its lowest close since April 2003.
Long-term yields are still down 35 basis points since Christmas, while short-term rates have risen by almost as much, so dramatically flattening the yield curve.
This trend has been partly driven by the Fed's measured approach to tightening since it has reduced interest rate uncertainty, restrained inflation expectations and helped shove yield-hungry investors toward longer-dated Treasuries in a world of painfully thin credit spreads.
"Apparently the Fed's new policy of "transparency" has taken the shock value out of monetary policy," said Ethan Harris Chief U.S. economist at Lehman Brothers.
The Fed and business economists all seemed to have similar forecasts for growth and inflation, and the Fed had promised to forewarn the markets if there was any change of plan.
"This in turn implies reduced volatility, reduced risk premiums and greater willingness to extend duration and buy riskier assets," he said, pointing to the surprising drop in long-term Treasury yields.
Factors Fed to consider at rate-setting meeting
Tue Feb 1, 2005 11:01 AM ET
By Andrea Ricci
NEW YORK, Feb 1 (Reuters) - The Federal Reserve is expected to raise official U.S. interest rates by a quarter percentage point for the sixth time since last June when it finishes a two-day monetary policy meeting on Wednesday, analysts said.
Analysts said they did not expect the policymaking Federal Open Market Committee to change the language in its habitual post-meeting statement. That is, the U.S. central bank was seen as very likely to stick to its line that "policy accommodation can be removed at a pace that is likely to be measured."
The Fed is also expected to repeat that the risks to attaining both sustainable growth and price stability are roughly equal.
A quarter-point hike on Wednesday would bring the benchmark federal funds rate to 2.5 percent. Interest rate futures (0#FF;: Quote, Profile, Research) have priced in similar hikes at meetings in March and probably in May also.
So what are some of the key issues the FOMC will consider?
INFLATION STILL CONTAINED
* The core personal consumption expenditure index, the Fed's favored measure of inflation, rose at a 1.6 percent annual rate in the fourth quarter of 2004, nearly twice the 0.9 percent advance posted in the third quarter, but still well within the Fed's comfort range.
Other measures of price pressures are benign too. The employment cost index rose 0.7 percent in the fourth quarter as salaries and wages grew at their slowest in nearly six years. Analysts said these figures were not likely to worry the Fed.
* Gross domestic product growth apparently slowed in the fourth quarter as the country's trade picture deteriorated, though the U.S. Commerce Department has said the figure may be revised upward from the 3.1 percent reported because of a miscalculation on trade by Canada's statistics department.
Even with slower growth at the end of the year, U.S. GDP for all of 2004 probably advanced around 4.5 percent.
* Factory data have indicated some moderation in growth at the start of the year.
WHAT THE FED HAS SAID
A remark in the minutes to the Dec. 14 FOMC meeting that the real fed funds rate target remained "below the level it most likely would need to reach to keep inflation stable" was interpreted by the market as suggesting that the Fed might ratchet up the pace of tightening.
But since the minutes' release on Jan. 4, several Fed members have said they believed inflation remained contained and was likely to be moderate in 2005.
A number of Fed officials also said they were not worried that investors were taking excessive risks because of low interest rates, playing down comments by "some participants" cited in the minutes of the previous meeting.
St. Louis Fed President William Poole raised some eyebrows in financial markets by saying the term "measured pace" would need to be dropped eventually. Other Fed officials have said language would change when conditions in the economy changed.
SPECIAL TOPIC
The FOMC typically picks a special topic for its two-day meetings, which it holds twice a year, and for this meeting, it will be inflation targeting.
Fed Chairman Alan Greenspan has made clear he prefers a more discretionary approach, and analysts said chances are extremely slim that the group would seriously consider such a policy before Greenspan's term ends early next year. But other members are on the record supporting targeting, and it may become a larger issue in future.
MARKETS
U.S. stock markets are weaker than they were when the Fed last met in December. The broad S&P 500 index is down about 2 percent since Dec. 14.
The dollar has firmed almost 2 percent against the euro in the same period, helped by higher U.S. interest rates which reward the holding of dollars.
But dealers said concerns about the wide U.S. current account gap continue to weigh on the currency.
Tue Feb 1, 2005 11:01 AM ET
(Adds ISM data, updates prices)
By Wayne Cole
NEW YORK, Feb 1 (Reuters) - U.S. Treasury debt prices turned mixed on Tuesday as a slight slowdown in U.S. manufacturing activity was balanced by a pickup in hiring plans.
The Institute for Supply Management's activity index eased to 56.4 in January from a revised 57.3 in December. Analysts had looked for a dip to 57.0 and noted new orders slowed more sharply, perhaps dimming the outlook for growth ahead.
But bond bulls were restrained by a near 5-point jump in the employment index to 58.1. There has been little correlation between this measure and actual jobs growth in manufacturing, but the rise might still stir speculation of a healthy January payrolls report, due on Friday.
"The data are marginally positive for bonds. It shows a slight loss of momentum, and new orders are the weakest in quite some time," said Alan Ruskin, research director at 4CAST.
However, after initially rallying on the numbers, investors were quick to take profits and the benchmark 10-year note (US10YT=RR: Quote, Profile, Research) eased 5/32 in price. Its yield ticked up to 4.15 percent from 4.13 percent.
There were no such profits to take in short-term debt, which has underperformed for months, and two-year yields (US2YT=RR: Quote, Profile, Research) held steady at 3.27 percent .
In sum, the data did nothing to change expectations the Federal Reserve will raise interest rates when its two-day policy meeting ends on Wednesday, and the market is still pricing in rates of 3.0 percent by the summer.
"At 56 and change, the economy is strong enough not to stand in the way of the Fed removing accommodation," said Ruskin. "But once extreme accommodation is removed, (the data don't) make a compelling case to tighten much beyond that."
He thought the economic outlook was consistent with rates at 3.0 percent to 3.25 percent, but not the whole hog to neutral, which some economists see closer to 4.0 percent.
Still to come on Tuesday are auto sales for January, which could be supportive for bonds given analysts expect a marked slowdown after a steep, incentive-driven jump in December.
Median forecasts are that sales of North American-made cars slowed to an annual 5.2 million pace in January from 5.95 million the month before, while sales of light trucks hit 7.8 million from 8.69 million.
The five-year Treasury note (US5YT=RR: Quote, Profile, Research) added 1/32 in price, nudging yields down to 3.69 percent from 3.70 percent. At the very long end, the 30-year bond (US30YT=RR: Quote, Profile, Research) ran into some profit-taking after its recent meteoric rally and lost 9/32 in price. Its yield rose to 4.60 percent having finished at 4.59 percent on Monday, its lowest close since April 2003.
Long-term yields are still down 35 basis points since Christmas, while short-term rates have risen by almost as much, so dramatically flattening the yield curve.
This trend has been partly driven by the Fed's measured approach to tightening since it has reduced interest rate uncertainty, restrained inflation expectations and helped shove yield-hungry investors toward longer-dated Treasuries in a world of painfully thin credit spreads.
"Apparently the Fed's new policy of "transparency" has taken the shock value out of monetary policy," said Ethan Harris Chief U.S. economist at Lehman Brothers.
The Fed and business economists all seemed to have similar forecasts for growth and inflation, and the Fed had promised to forewarn the markets if there was any change of plan.
"This in turn implies reduced volatility, reduced risk premiums and greater willingness to extend duration and buy riskier assets," he said, pointing to the surprising drop in long-term Treasury yields.
Factors Fed to consider at rate-setting meeting
Tue Feb 1, 2005 11:01 AM ET
By Andrea Ricci
NEW YORK, Feb 1 (Reuters) - The Federal Reserve is expected to raise official U.S. interest rates by a quarter percentage point for the sixth time since last June when it finishes a two-day monetary policy meeting on Wednesday, analysts said.
Analysts said they did not expect the policymaking Federal Open Market Committee to change the language in its habitual post-meeting statement. That is, the U.S. central bank was seen as very likely to stick to its line that "policy accommodation can be removed at a pace that is likely to be measured."
The Fed is also expected to repeat that the risks to attaining both sustainable growth and price stability are roughly equal.
A quarter-point hike on Wednesday would bring the benchmark federal funds rate to 2.5 percent. Interest rate futures (0#FF;: Quote, Profile, Research) have priced in similar hikes at meetings in March and probably in May also.
So what are some of the key issues the FOMC will consider?
INFLATION STILL CONTAINED
* The core personal consumption expenditure index, the Fed's favored measure of inflation, rose at a 1.6 percent annual rate in the fourth quarter of 2004, nearly twice the 0.9 percent advance posted in the third quarter, but still well within the Fed's comfort range.
Other measures of price pressures are benign too. The employment cost index rose 0.7 percent in the fourth quarter as salaries and wages grew at their slowest in nearly six years. Analysts said these figures were not likely to worry the Fed.
* Gross domestic product growth apparently slowed in the fourth quarter as the country's trade picture deteriorated, though the U.S. Commerce Department has said the figure may be revised upward from the 3.1 percent reported because of a miscalculation on trade by Canada's statistics department.
Even with slower growth at the end of the year, U.S. GDP for all of 2004 probably advanced around 4.5 percent.
* Factory data have indicated some moderation in growth at the start of the year.
WHAT THE FED HAS SAID
A remark in the minutes to the Dec. 14 FOMC meeting that the real fed funds rate target remained "below the level it most likely would need to reach to keep inflation stable" was interpreted by the market as suggesting that the Fed might ratchet up the pace of tightening.
But since the minutes' release on Jan. 4, several Fed members have said they believed inflation remained contained and was likely to be moderate in 2005.
A number of Fed officials also said they were not worried that investors were taking excessive risks because of low interest rates, playing down comments by "some participants" cited in the minutes of the previous meeting.
St. Louis Fed President William Poole raised some eyebrows in financial markets by saying the term "measured pace" would need to be dropped eventually. Other Fed officials have said language would change when conditions in the economy changed.
SPECIAL TOPIC
The FOMC typically picks a special topic for its two-day meetings, which it holds twice a year, and for this meeting, it will be inflation targeting.
Fed Chairman Alan Greenspan has made clear he prefers a more discretionary approach, and analysts said chances are extremely slim that the group would seriously consider such a policy before Greenspan's term ends early next year. But other members are on the record supporting targeting, and it may become a larger issue in future.
MARKETS
U.S. stock markets are weaker than they were when the Fed last met in December. The broad S&P 500 index is down about 2 percent since Dec. 14.
The dollar has firmed almost 2 percent against the euro in the same period, helped by higher U.S. interest rates which reward the holding of dollars.
But dealers said concerns about the wide U.S. current account gap continue to weigh on the currency.
