Not quite the postsupply rally anyone was looking for.
Finally, after two long weeks of looking ahead at supply, the
bond offering and the two-year note auction are in the books. And the best the market could do was pop higher on this morning's February
report, and then hope for news elsewhere.
"We basically lack conviction," said Michael P. Ryan, senior fixed income strategist at
. "There hasn't been a single catalyst to put us out of the tight range. There's nothing materially slowing the economy."
Today was a day to bang on the computer screen to see if it was frozen, because the 30-year bond spent several hours sitting on an 8/32 gain. Lately the long bond was up 9/32 to 95 27/32, yielding 5.54%. There's some expectation that the curve will steepen as a potential response to
decision to bomb Serbian targets (fear generally sparks flight to Treasury bills and notes, the safest financial instruments), but that hasn't yet materialized. Equity softness, before a late recovery led by
issues, also failed to translate into any haven buying.
Volume today was atypical of this month, only down 14% when compared with the average first quarter,
"Institutional buying is in the sister markets, and nobody is really paying much attention to Treasuries," said Jim Kochan, senior bond market strategist at
Robert W. Baird
. "Unwinding hedges against corporate deals should have caused some
rallying. It seems to me that we should be doing somewhat better."
The relief rally expected after the $8 billion AT&T offering didn't come to fruition. Part of that may be that the $15 billion two-year Treasury note auction dampened interest in other maturities while dealers absorbed that paper. That auction sold with a 2.2-to-1 bid-to-cover ratio, indicating decent interest.
But any solace the market took from witnessing the successful conclusion of the AT&T issue was short-lived. It certainly doesn't mean that corporate issuers have closed up shop. If anything, infrequent issuers will probably be emboldened by AT&T's success and flood the market with more bonds.
Federal Open Market Committee
has one of those meetings next week, by the way. According to a survey conducted today by
Thomson Global Markets
, only about 15% of 30 dealers and salesmen expect a change in direction, but the possibility is there.
"The FOMC meeting is approaching, so any relief rally is going to be tempered," said Ryan. "If you want catalysts that will send bonds higher, it's going to require another sharp selloff in the equity markets, or some piece of convincing data that growth is slowing materially from the fourth quarter of 1998."
One poor durable goods report isn't going to do it. Durable goods orders fell 5% in February, the greatest one-month decline since December 1991. Orders for transportation equipment fell 14.3%, led by declines in aircraft and parts orders.
"Everyone's played up the aircraft component, but there's the auto side of it -- in the fourth quarter we got almost $10 billion in additional vehicle deliveries because of the
strike," said Diane Swonk, deputy chief economist at
. "So now we're unwinding that. Some of this weakness is a response to extraordinary strength in the fourth quarter."
Excluding transportation orders, durable goods orders fell 1.7%, the first decline since October. "In terms of this being some indicator of manufacturing weakness, I have a hard time believing that," said Swonk.
NATO forces commenced their assault on Yugoslavia late in the day. How long the conflict will last, and to what magnitude is beyond prediction, so the market hasn't reacted, save for a knee-jerk rally yesterday after
grim announcement that he had failed to reach an agreement with Yugoslavian President
"I don't know what it means for our market -- it's not a strategic area in terms of mineral resources," said Ryan. "Is it enough to rattle financial markets? Maybe, and that may create a bid for Treasuries. We're going to have to see what the morning after means."