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Reuters
Treasuries Defensive; Await Data, Supply
Tuesday July 27, 9:20 am ET
By Wayne Cole
NEW YORK (Reuters) - U.S. Treasury prices slipped for a second session on Tuesday as bears sold in anticipation of upbeat economic data and traders looked to cheapen prices before $35 billion in new supply.
The benchmark 10-year note (US10YT=RR) eased 4/32 in price, lifting yields to 4.50 percent. That was up from a low of 4.35 percent last week and a step closer to the ceiling of this month's tight trading range around 4.52 percent.
Traders are also anxious ahead of an auction of $11 billion in 20-year inflation protected notes (TIPS) in case investors are scared away by such exotic long-dated paper.
"Ultimately, the Treasury has probably gone to some pains to estimate end-user demand for the issue, and the risk of an unsuccessful auction seems small," said Richard Gilhooly, fixed-income strategist at BNP Paribas.
Of the data today, the Conference Board measure of consumer confidence is seen rising slightly to 102.0 in July from 101.9 in June, though talk in the market is that it could be higher, perhaps 104.0.
Analysts always note there is scant correlation between surveys of consumers and actual spending habits, but they do see a link between the Conference Board's measure of jobs hard to get and payrolls.
The jobs hard to get measure declined to 26.5 in June and any further drop could stoke speculation the July payrolls report will show a strong revival after June's softness.
Also due are new home sales for June with analysts expecting a modest pullback to an annual 1.278 million pace from 1.369 million in May. Again traders fear the number could be stronger if only because existing home sales surprised on the upside in June.
Aware of the danger, traders nudged the five-year note (US5YT=RR) down 2/32, lifting yields to 3.75 percent from 3.74 percent. At the long end, 30-year bonds (US30YT=RR) lost 4/32, taking yields to 5.22 percent from 5.21 percent.
The mildly bearish tone in the market was illustrated by the latest J.P. Morgan client survey. Those holding long positions dropped to 13 last week from 17 the week before, while those shorting the market climbed to 51 from 38, the highest reading in more than two months.
Two-year yields (US2YT=RR) edged up to 2.72 percent from 2.71 percent Friday. The spread between two- and 30-year yields broke below the 250 basis point barrier early Tuesday having contracted by over 70 basis points so far this year.
Later Tuesday, Treasury will launch its first auction of 20-year TIPS. Traders are unsure how such long-duration paper will be received since higher duration means the notes are more sensitive to rises in interest rates at a time when the Fed is just starting a tightening cycle.
Still, shorter-dated TIPS have performed well this year thanks in large part to the sudden reemergence of inflation pressures. With oil and commodity prices still high and talk of companies regaining pricing power, the threat of future inflation could be enough to ensure demand for the new paper.
Treasuries Defensive; Await Data, Supply
Tuesday July 27, 9:20 am ET
By Wayne Cole
NEW YORK (Reuters) - U.S. Treasury prices slipped for a second session on Tuesday as bears sold in anticipation of upbeat economic data and traders looked to cheapen prices before $35 billion in new supply.
The benchmark 10-year note (US10YT=RR) eased 4/32 in price, lifting yields to 4.50 percent. That was up from a low of 4.35 percent last week and a step closer to the ceiling of this month's tight trading range around 4.52 percent.
Traders are also anxious ahead of an auction of $11 billion in 20-year inflation protected notes (TIPS) in case investors are scared away by such exotic long-dated paper.
"Ultimately, the Treasury has probably gone to some pains to estimate end-user demand for the issue, and the risk of an unsuccessful auction seems small," said Richard Gilhooly, fixed-income strategist at BNP Paribas.
Of the data today, the Conference Board measure of consumer confidence is seen rising slightly to 102.0 in July from 101.9 in June, though talk in the market is that it could be higher, perhaps 104.0.
Analysts always note there is scant correlation between surveys of consumers and actual spending habits, but they do see a link between the Conference Board's measure of jobs hard to get and payrolls.
The jobs hard to get measure declined to 26.5 in June and any further drop could stoke speculation the July payrolls report will show a strong revival after June's softness.
Also due are new home sales for June with analysts expecting a modest pullback to an annual 1.278 million pace from 1.369 million in May. Again traders fear the number could be stronger if only because existing home sales surprised on the upside in June.
Aware of the danger, traders nudged the five-year note (US5YT=RR) down 2/32, lifting yields to 3.75 percent from 3.74 percent. At the long end, 30-year bonds (US30YT=RR) lost 4/32, taking yields to 5.22 percent from 5.21 percent.
The mildly bearish tone in the market was illustrated by the latest J.P. Morgan client survey. Those holding long positions dropped to 13 last week from 17 the week before, while those shorting the market climbed to 51 from 38, the highest reading in more than two months.
Two-year yields (US2YT=RR) edged up to 2.72 percent from 2.71 percent Friday. The spread between two- and 30-year yields broke below the 250 basis point barrier early Tuesday having contracted by over 70 basis points so far this year.
Later Tuesday, Treasury will launch its first auction of 20-year TIPS. Traders are unsure how such long-duration paper will be received since higher duration means the notes are more sensitive to rises in interest rates at a time when the Fed is just starting a tightening cycle.
Still, shorter-dated TIPS have performed well this year thanks in large part to the sudden reemergence of inflation pressures. With oil and commodity prices still high and talk of companies regaining pricing power, the threat of future inflation could be enough to ensure demand for the new paper.
