Data-Starved Treasuries Cower as Stocks Run

Also, details are announced for tomorrow's buyback operation.
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Treasuries lost ground in a low-volume session highlighted by the monthly auction of new two-year notes and the announcement of the details of tomorrow's buyback operation.

There were no major economic releases. Rather, rising stock prices appeared to be the chief catalyst for the selloff in Treasuries, which penalized short- and long-maturity issues more or less equally. Firming stock prices "gave a negative tone to the Treasury market,"

Lehman Brothers

economist Michael Gregory said.

Amid the economic-data drought conditions that have prevailed since last Tuesday, the Treasury market has been reacting principally to the stock market, rallying when stocks fall and falling when stocks rally. That's because the stock market is seen as having the potential to influence

Fed policy: Lower stock prices will likely slow consumer spending, possibly limiting the amount by which the Fed hikes the

fed funds rate in the months ahead. Also, falling stock prices encourage investment in bonds, where wealth is less rapidly destroyed.

The benchmark 10-year Treasury note fell 11/32 to 100 5/32, lifting its yield 4.7 basis points to 6.475%. The two-year note fell 3/32 to 99 5/32, boosting its yield 4.9 basis points to 6.841%. The 30-year bond lost 16/32 to 100 22/32, its yield adding 3.3 basis points to 6.198%. And at the

Chicago Board of Trade

, the June

Treasury futures contract fell 8/32 to 93 22/32.

The action left prices and yields more or less in the middle of the range they have occupied all month. For the market to move into new ground, be it higher or lower, it needs important new economic information, said Ray Remy, executive managing director at

HSBC Securities

. "I think the market's going to turn its attention to economic fundamentals, but it's in a holding pattern as we wait for information on whether the economy's slowing or not," he said.

Tomorrow brings revised first-quarter

GDP

numbers and Friday has the April

durable goods orders

report, but the first A-list indicator on the horizon is the June

employment report

on June 2.

Also contributing to the negative tone in Treasuries today, Lehman's Gregory said, was the announcement of the details of the Treasury Department's next buyback operation, slated for tomorrow. The department announced that it will take offers on up to $2 billion of 30-year bonds issued between February 1989 and August 1993 at 11 a.m. EDT tomorrow.

Because the details were as-expected and not better-than-expected (a larger amount would have been better), some market participants pulled the old "buy on the rumor, sell on the fact," Gregory said.

Federal government surpluses have made it possible for the government to pay down debt, which takes the form of Treasury securities outstanding. Accordingly, the Treasury Department launched its first buyback program since the 1930s in March.

Meanwhile, the Treasury auctioned new two-year notes today, selling $10 billion at a yield of 6.749%, the highest since February 1995. The bid-to-cover ratio, which measures demand for the new securities, was higher than the recent average at 2.52.

The Treasury Department continues to issue new Treasury securities even as it conducts buybacks because trading activity in Treasuries is concentrated in the newest issues. The old issues that the buybacks have taken out of circulation change hands much less frequently. The decision to continue to issue new Treasuries reflects the view that it is in the government's best interest to maintain a liquid market for its debt.

Economic Indicators

The weekly

Mortgage Applications Survey detected a slight decline in refinancing activity but an increase in new mortgage activity, in spite of rising interest rates. The Refinancing Index fell to 328.9 from a revised 330.9, while the Purchase Index rose to 326.3 from a revised 296.6. Last week,

Freddie Mac's

(FRE)

30-year mortgage rate rose to 8.64%, the highest since February 1995.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 107.85 yen, up from 106.45. The euro was worth $0.9047, down from $0.9074. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for July delivery at the

New York Mercantile Exchange

rose to $29.93 a barrel from $28.78.

The

Bridge Commodity Research Bureau Index

rose to 225.47 from 224.08.

Gold for June delivery at the

Comex

fell to $273.80 an ounce from $274.70.