Treasuries Shed Commodity-Related Losses as Stocks Sag

Treasuries ended unchanged thanks to the late-day selloff in stocks. Earlier in the session, they were under pressure as a key commodity price index bounded to a two-year high, highlighting inflationary pressures in the economy.

At various points during the session, bond traders turned their attention to the Treasury Department's latest buyback, and to a rumor, swiftly declared false, that Fed Chairman Alan Greenspan had been in a car accident. But neither the buyback nor the rumor affected prices.

The benchmark 10-year Treasury note was unchanged at 102 26/32 in late trading, its yield 6.107%. The 30-year bond was unchanged at 103 30/32, its yield 5.967%.

At the Chicago Board of Trade, the September Treasury futures contract fell 3/32 to 96 16/32.

Early in the session, Treasuries traded up slightly, anticipating the 11 a.m. EDT buyback. At that hour, dealers wishing to sell bonds back to the Treasury Department had to tender their offers. The department ultimately accepted offers on $2 billion par amount of bonds maturing between February 2015 and August 2019, as it had announced it would.

Reactions to the buybacks, which began in March, have varied. Following some, prices have fallen because dealers -- whose offers were not accepted -- sold their bonds to other buyers. After others, prices have risen because dealers sold to the Treasury Department more than they had expected to, so they bought bonds to replace the ones they'd sold. Today's buyback appeared to go more or less as expected, said Mark Mahoney, Treasury market strategist at UBS Warburg. "People were much better set up for this one," he said.

But later in the session, Treasuries surrendered their gains as the Bridge Commodity Research Bureau Index raced higher, driven primarily by energy prices but also by cocoa, which surged more than 6% on rumors of a coup in Ivory Coast, a top producer.

"The CRB and oil are not sending real good signals to the Fed," said Mary Ann Hurley, a trader at D.A. Davidson in Seattle. The Federal Open Market Committee is meeting next week to set monetary policy, and while hardly anyone expects a change in the fed funds rate , there is uncertainty about how much higher the rate will ultimately have to rise in order to contain inflation.

The fact that Treasuries performed as well as they did today is a testament to the popularity of the view that more than one more rate hike won't be necessary, Hurley said. "I guess the Street really does believe the slowdown is legit," she said.

The 30-year bond underperformed its shorter-maturity peers, probably due to two competing 30-year bond issues, UBS Warburg's Mahoney said. The country of Qatar sold $1.4 billion of bonds, and the Tennessee Valley Authority started taking offers on $1 billion to be sold tomorrow.

Economic Indicators

In the only economic news of the day, initial jobless claims rose to 312,000 from a revised 297,000 the previous week, indicating a slight slackening of labor-market conditions.

Currency and Commodities

The dollar fell against the yen and rose against the euro. It lately was worth 104.43 yen, down from 105.58. The euro was worth $0.9355, down from $0.9442. For more on currencies, please take a look at TSC's Currencies column.

Crude oil for August delivery at the New York Mercantile Exchange rose to $32.19 a barrel from $31.37.

The CRB Index rose to 227.04, the highest since May 1998, from 225.04.

Gold for August delivery at the Comex fell to $287.20 an ounce from $288.10.