Bond Focus
Treasuries Slip in Quiet Trading Ahead of FOMC Meeting
Anwar Husain
01/29/01 - 05:46 PM EST
were lower, especially at the long end, which lost more than half a point. The shorter-term notes were marginally off. With no release of economic data today, dealers are awaiting decisions to come from the Jan. 30-31 meeting of the Federal Open Market Committee , the policy-making arm of the Federal Reserve . Yields were up slightly on the 10-year and the 30-year Treasury and close to flat on the notes after having dipped earlier in the morning. The benchmark 10-year Treasury note fell 12/32 to 103 10/32, raising its yield 4.9 basis points to 5.315%. The 30-year Treasury bond fell 24/32 to 107 29/32, raising its yield 4.9 basis points to 5.692%. Much of what has been happening in the money market over the last two trading days has hinged on recent remarks by Fed chairman Alan Greenspan . Greenspan indicated in his comments to the Senate Budget Committee last week that economic growth is at a standstill. Although he devoted most of his talk to the macroeconomic benefits of a tax cut and dropped no hint about monetary corrective measures, Greenspan did not appear to contradict market expectations of a half percentage point cut in interest rates at the end of this month. He was much more explicit about inflation, deeming it well under control. The potential rise of inflation has been the major reason for the Fed to back away from lowering interest rates in the past. Market watchers were somewhat taken aback by Greenspan's endorsing, in principle if not necessarily in degree or timing, the proposed tax breaks of the Bush administration. But they took his comments on the economy and inflation to mean that a 50 basis-point cut in the fed funds rate is inevitable. The fed funds futures rate, which tracks such sentiment, presently pegs the chances of this happening at almost 95%. According to IFRglobalmarkets.com, the volume of trading today was a little more than half of what it has been over the past five days. This was in no small part due to the absence of corporate and agency debt issuance, which had been flooding the money market over the last three weeks and causing bond strategists to substantially shift portfolio positions to accommodate the higher yielding corporate securities. In fact, January saw a new record for the amount of corporate issues entering the market in a single month. Thomson Financial Securities Data notes that the $83.05 billion of such debt issued this month eclipsed the previous record of $57.3 billion set last March. The arrival of high-yielding investment-grade debt in the trading pit hits the longer-maturing bonds hardest, especially in an environment of falling rates. Traders offload the longer-dated security to minimize their exposure to the possible inflation that may accompany the increased liquidity resulting from easier lending. Besides the developments at the central bank's meeting, economic news to watch for during the week is the previous quarter's gross domestic product ( fell 11/32 to 102 14/32.