Bonds Surrender Early Gains on Strong Data
Two stronger-than-expected economic reports pulled the bond market off its highs but left prices mixed on the day. The benchmark 10-year Treasury note was unchanged, but the shortest- and longest-maturity Treasuries rose slightly.
All the while, volume was light and the trading range was narrow, as investors continued to bide their time ahead of the release of top-tier economic data later this week. Thursday brings the second-quarter
Employment Cost Index
(
definition |
chart |
) and June
durable goods orders
(
definition |
chart |
) report; Friday, the second-quarter advance
GDP
(
definition |
chart |
) report. "Obviously, everything is on hold 'til we see the ECI numbers on Thursday,"
Paribas Capital Markets
senior bond strategist Richard Gilhooly said.
Fed Chairman
Alan Greenspan appeared before the House Banking Committee, but as expected, he delivered the identical
testimony he presented to the Senate last week, and no new ground was broken in the Q&A that followed.
The 10-year Treasury note was unchanged at 103 12/32 in late trading, its yield 6.027%. But the two-year note was up 1/32 at 100 2/32, dropping its yield a fraction of a basis point to 6.339%, and the 30-year bond was 5/32 higher at 106 8/32, lowering its yield 1.1 basis points to 5.805%.
At the
Chicago Board of Trade
, the September
Treasury futures contract rose 3/32 to 98 17/32.
Today's economic data detected unexpected strength in consumer confidence and home sales.
The
Consumer Confidence Index
(
definition |
chart |
) rose to 141.7 in July from a revised 139.2 in June. It had been forecast by economists polled by
Reuters
to rise to 139.3, on average.
Existing home sales
(
definition |
chart |
) rose 2.8% to a 5.23 million pace in June, the fastest since last August, from 5.09 million in May. They had been forecast to drop to 5.02 million.
The reports "raise questions about a key viewpoint offered in the
Humphrey-Hawkins testimony,"
Daiwa Securities
chief economist Michael Moran said, referring to the speech Greenspan gave last week and again today. Specifically, the assertion that consumer spending on homes is destined to slow for the simple reason that it has been growing at such a fast pace for so long.
Following the release of these reports, Treasuries gradually surrendered moderate gains they had made thanks, Gilhooly said, to the recent weakness in equities, strength in the European bond markets in their Tuesday session, and "a generally bullish tone to the Treasury market since Greenspan's speech, which he had the opportunity to change, but didn't."
A packed calendar of investment-grade corporate bond debuts also weighed on Treasuries, Gilhooly noted. Issuance is on track to total $11.25 billion this week, compared to a year-to-date average of $7.4 billion, according to
IDEAglobal.com
. Corporate bond issuance can trigger selling of Treasuries either by underwriters as a hedge or by investors who wish to buy the new bonds.
The damage wasn't worse, Daiwa's Moran surmised, because while the numbers were strong, "they didn't break into new territory in any way." Both the Consumer Confidence Index and the pace of existing home sales remain below peaks reached in the last year.
Economic Indicators
In other economic news, the two weekly retail sales reports posted unimpressive results. The
BTM Weekly U.S. Retail Chain Store Sales Index
(
definition |
chart ) fell 0.1% in the latest week, while the
Redbook Retail Average
(
definition |
chart ) found July sales running 1% ahead of June after three weeks, down from 1.2% after two weeks.
Currency and Commodities
The dollar rose against the yen and fell against the euro. It lately was worth 109.03 yen, up from 108.78. The euro was worth $0.9381, up from $0.9335. For more on currencies, see
TSC's
Currencies column.
Crude oil for September delivery at the
New York Mercantile Exchange
fell to $27.95 a barrel from $28.02.
The
Bridge Commodity Research Bureau Index
fell to 218.19 from 218.76.
Gold for August delivery at the
Comex
was unchanged at $279.30 an ounce.
