Treasuries Edge Up as Stocks Crumble

Treasury prices finished higher as fixed-income securities benefited from another day of heavy losses in the stock market. Investors fleeing stock meltdowns typically transfer their holdings to the more stable government securities. Treasury notes led the advance today as bond buying tilted toward the short end. The long bond gained a quarter point in value as well, although its yield movement remained relatively flat

The benchmark 10-year Treasury note rose 7/32 to 100 14/32, lowering its yield 3 basis points to 4.943%.

The 30-year Treasury bond rose 8/32 to 98 18/32, lowering its yield 1.7 basis points to 5.472%.

In recent days, the yield curve has steepened, with the short-dated securities rallying and long-dated securities selling off. This has increased the spread between the yields of the two-year note and the 30-year bond.

Traders are also pricing up Treasuries again on hopes that the Federal Reserve will reduce short-term lending rates this month if equity values continue their free fall. The latest Fed funds futures contract for April indicates that the chances of a quarter-point reduction in interest rates stand at about 30% for this month. The prospect of a half-point cut at the next monetary policy meeting in mid-May, as indicated in that month's futures contract, remains certain.

In a speech at Philadelphia University, San Francisco Fed president Robert Parry said that due to increasing productivity, the central bank has had to be more flexible in interpreting economic developments to achieve its main goals of "price stability and sustainable economic growth." He admitted that recent data had shown that productivity improvements had not ended "the economic fluctuations traditionally associated with the business cycle."

Earlier, Philadelphia Fed chief Anthony Santomero said that the FOMC would keep a watch on consumer spending patterns, as that is the "key to the future movement of the economy." The central bank continues to put faith in an economic rebound in the second half of this year. Neither Parry nor Santomero will be voting on interest rate changes this year, but public statements from officers in their positions are often indicative of upcoming Fed strategy.

The Treasury announced a buyback of notes maturing between May and December of this year. The department has recently stepped up its open market purchases, especially those of short-term debt, in order to prevent the System Open Market Account from being periodically rolled over into long-term Treasuries in its entirety.

At the Chicago Board of Trade, the June Treasury futures contract rose 5/32 to 104 1/32.

Economic Indicators

Today's only monthly economic release was the report on factory orders (definition | chart | source ) from the Commerce Department. Orders were down 0.4% in February, compared with economists' expectations for a 0.2% decline. January's orders fell 4.3%. This figure isn't often a market mover because most of the information is available in the durable goods orders (definition | chart | source ) report, which is released a week earlier.

Today's data updates the durable goods release. Durable orders fell 0.4% in February, revised from the earlier estimate of 0.2%.

The most recent weekly retail-sales figure indicated a sixth consecutive decline, according to the BTM-UBSW Weekly Chain Store Sales Index (definition | chart ). Sales fell 1.7% for the week ended March 31, after a 0.4% decline the previous week.

Currency and Commodities

The dollar fell against the yen and against the euro. It lately was worth 125.50 yen, down from 126.79. The euro was worth $0.8960, up from $0.8794. For more on currencies, see TSC's Currencies column.

Crude oil for May delivery at the New York Mercantile Exchange rose to $26.19 a barrel from $25.59.

The Bridge Commodity Research Bureau Index rose to 210.56 from 209.42.

Gold for June delivery at the Comex rose to $257.90 an ounce from $256.60.