Treasuries pared their losses as the stock market tanked and an apparent military coup toppled the government of Pakistan, but yields still rose on the day, tracking commodity prices higher.
There were no market-moving economic releases, and the benchmark 30-year Treasury bond ended a low-volume session 15/32 lower at 98 18/32, lifting its yield 3 basis points to 6.23%. Earlier it traded down as much as 23/32.
Bond traders have little to do this week but await the release on Friday of the September
Producer Price Index
, the leading measure of inflation at the wholesale level. A stronger-than-expected reading on the core PPI in particular, which excludes volatile food and energy prices, will be marked Exhibit B in the case for another interest-rate hike by the
at its next meeting on Nov. 16. (Exhibit A was the
average hourly earnings
component of the September
, released Friday. It rose 0.5%, two tenths more than expected.)
The PPI is expected to rise strongly due to an 18-cent-a-pack cigarette price hike that took effect last month. The question,
senior money market economist John Youngdahl said, is whether September wholesale price increases are largely confined to tobacco, "or are other numbers going to make the report sticky?"
Henry Willmore, senior economist at
, predicted that tobacco will account for 0.3 percentage points of the overall PPI's September increase, and 0.4 percentage points of the core's increase. "You have to just take that out," he said. "We'll be looking to see if there are some significant price increases outside of tobacco in the core numbers."
In the meantime, bond traders are fretting over whether the long Treasury and the more actively traded 10-year note will make new lows for the year. The long bond's highest close in yield terms was 6.26% on Aug. 12, while the 10-year note's was 6.16% on Aug. 10.
"In the big picture," Youngdahl said, "the price action of the last several days suggests eroding confidence that the yield levels that have served as a ceiling up till this point will stay a ceiling for very much longer." That depends, he said, "on whether we get any negative surprises in the statistics coming up, specifically those on inflation and wages."
The fact that average hourly earnings rose sharply in the September jobs report was one such negative surprise.
On the other hand, Barbara Kenworthy, portfolio manager at
in Newark, notes that "even though the market is having problems moving higher, it's having problems moving lower too."
Bond investors are clearly more disposed to sell than to buy, she said. "Everybody we talk to wants to sell a bounce. Nobody wants to buy a bottom." The buyers are waiting for a clear indication that the Fed won't hike rates again this year, and that the economy is slowing. "But till we get some data we can sink our teeth into," Kenworthy said, "the market is likely to trade in a range."