The presence of several large corporate and agency deals is pressuring the bond market, which otherwise had endured a very quiet morning. Thin volume is once again exaggerating the selling pressure that's materialized after the sale of two large deals this morning. Lately the 30-year Treasury bond was down 4/32 to trade at 95 24/32, as the yield rose to 5.54%.
sold a $1.36 billion offering this morning, and
sold a $3 billion 10-year reference note, a program designed to provide investors with a liquid benchmark with similar characteristics of Treasury bonds. Immediately after the sales the 30-year bond fell as much as 23/32.
Two factors are at work. One is a simple supply-and-demand issue. The large corporate and agency issues capture investors' attention, shifting them away from buying Treasury bonds.
The second is of a more technical nature. When dealers plan to sell corporate bonds, they hedge against holding the riskier paper by selling off Treasury bonds. Generally, once the deal is sold, they buy bonds back. However, that activity didn't materialize this morning -- some suspect it was responsible for some of the late rally yesterday -- and therefore, other traders who bought in anticipation were caught going the wrong direction when bonds didn't rally. Add this to the lack of buying interest in retail, and it means the market isn't being supported.
"There was some buying ahead of the deals but then there was disappointment that there wasn't more buying," said Tony Crescenzi, chief bond market strategist at
Miller Tabak Hirsch
. "There was some crowding out, which does reduce demand for Treasuries at the very least."
Following this activity, the market bounced back. The market is expecting a strong
retail sales report
tomorrow and a weak
Producer Price Index
, which should balance each other out. The PPI might be affected by rising oil prices, but the survey, usually conducted around the 12th of the month, took place before the recent rise in oil. Crude futures were higher on news that
producers plan to cut production to raise barrel prices.
"Yesterday was a very technical trade, but there was enough evidence of retail buying and not selling into strength to make people think there's something more to it," said David Ader, director of fixed income at
Thomson Global Markets
. "We have to give it a little time, and get the deals out of the way. If we get a strong retail sales number, and we can hold, we're dealing with a new element here."
Economists expect a 0.9% increase in February retail sales.