Treasuries rebounded today after more earnings concerns, this time by networking giant
, shook the stock market and sent some bulls cowering in the trenches.
As stocks finished the day mixed, the 10-year benchmark note, which got decimated yesterday, gained 12/32 to 98 14/32, moving the yield down to 5.204%. The 30-year bond, otherwise known as the long bond, gained 16/32 to 96 1/32, pushing the yield down to 5.651%. Two-year notes, which react most dramatically to expectations for changes in monetary policy, rose by 3/32 to 99 22/32, yielding 4.409%. Prices and yields move inversely to each other.
Today's strength in the bond market was a welcome reprieve from the sharp selloff in Treasuries. Yet there are reasons to believe that the upturn could be fleeting. For one, investors, who clearly will recover from the Cisco scare, haven't bailed entirely on tech. The
Nasdaq, like the blue-chip
Dow, ended its trading session in the green. Also, today's list of economic data indicates that the economy isn't faring too poorly, raising the concern that the
Federal Reserve may be disinclined to make an intermeeting rate cut, or cut as aggressively as hoped. All these factors could retrigger the selloff in the bond market, which recently experienced its worst two weeks since last May.
"The bond market has fallen sharply of late, and it's taking a breather," said Treasury market strategist Tony Crescenzi at
. Nevertheless, Crescenzi sees a downward trend for bond prices and an upward tick for yields, given that the "equity market seems to be finding its footing" resulting in the "greater competition for capital." In short, the bond market, which is usually a safe haven for equities-fleeing investors, could suffer from further rebounds in the stock market.
And don't forget the economy. "The bond market realizes that the manufacturing sector may be bottoming now," Crescenzi said, citing this morning's
industrial production figures. Figures today showed that industrial production rose 0.4% in March, the first increase since September and stronger than the consensus forecast for a 0.1% decline. That follows a 0.4% decline in February. Capacity utilization also rose to 79.4% from a revised 79.3%, helped by car and truck production. The market was expecting a decline to 79.2%. Manufacturing output, including motor vehicles and parts, also rose 0.3% after a 0.3% drop in February.
Indeed, the yield curve -- the difference in yield between specific Treasury securities -- is signaling that economic recovery is on the way. One of the key measures of the yield curve, the comparison between the three-month bill and the 10-year note, reverted to a more normal slope four months ago. But in the past week, the short end of the curve -- that is, the difference between the three-month bill and the two-year note -- also has reverted to a normal slope.
took a look at how this is a positive sign for the economy.
"The bond market is telling you that the economic rebound is around the corner and may be a quarter or two away," Crescenzi said. The issue that weighs on the bond market isn't an intermeeting Fed rate cut. "The magnitude of the rate cut going forward is what's key," Crescenszi noted.
John Ladensack, senior vice president of
Schwab Capital Markets
, is someone who forecasts near-term upside for the bond market. "I think the bond market is poised to have an excellent year whether or not the stock market comes out of this recession," he said, noting that bonds may outperform the stock market for a second year running. "The volatility in the stock market has caused people to adopt more discipline in money allocation. And more money will be dedicated to bonds. Plus, experts believe that the Fed will lower rates at least one more or two or three more times."