Long-Term Treasuries Rise as Talk Builds About 50-Point Rate Cut
Treasuries were mixed in quiet trading, as bond market investors looked ahead to next week's
Federal Open Market Committee meeting, where market watchers expect Alan Greenspan and his team of central bankers to cut rates by at least 25 basis points.
The two-year note, which fell earlier, reversing its six-day upward streak, was unchanged at 100 17/32, with a yield of 3.963%. Yields move in the opposite direction of prices. The 10-year benchmark note gained 5/32 to 98 7/32, yielding 5.237%, while the 30-year Treasury bond climbed 5/32 to 95 16/32, lowering the yield to 5.689%.
"It's very, very quiet out there," said Gary Zeltzer, senior vice president of taxable fixed income at
J&W Seligman
, an investment management firm based in New York. Zeltzer noted that Treasuries weakened slightly after this morning's
housing starts numbers. "Basically, people are staying neutral until next week's FOMC meeting."
At 1.622 million, housing starts, which measure privately owned housing units started, were stronger than expected in May, reflecting that the housing sector remains a stronghold in the otherwise softening U.S. economy. April's starts were also revised up to show a 1.629 million rate instead of 1.622 million. Meanwhile, consumers keep spending, as evidenced by this morning's chain store sales data. Both the
BTM-UBSW Weekly Chain Store Sales Index and the
Redbook Retail Average reported that sales grew 1% last week from the previous week.
Today's data join the economic reports that some believe are weak enough to lead to a 50-basis-point cut by the Fed when the group meets June 26-27. The manufacturing and industrial sectors remain a worry. Expectations for a larger rate cut have also been boosted by the latest
consumer price index and
producer price index which placated those worried about rising prices. (
TheStreet.com's
Justin Lahart recently
examined the case for a half-point rate cut by the Fed).
"It's possible, though our own view is that a 50-basis-point cut is not really needed and justified by data," said Chris Varvares, president of
Macroeconomic Advisors
, a consulting firm in St. Louis. "But let's face it, there's still a lot of downside risk, and little to restrain the Fed from going 50. And inflation risk is out there, but it's not a risk we're going to face in the next six months."