Maybe this is the continent's revenge for EuroDisney, but like
yesterday, Treasuries are underwater, largely due to selling in foreign bond markets. Looming corporate supply has buyers playing the waiting game, so this morning's been an inactive, narrowly traded session.
"The euro markets have been down half a point for days and Treasuries never noticed," said Anthony Karydakis, senior financial economist at
Banc One Capital Markets
. "But this is against the background of a dispirited market. That's why we seem to be so closely attuned to movement in foreign fixed-income markets -- there's nothing else to turn our attention to."
Lately the benchmark 30-year Treasury bond was off by 16/32 to 88 24/32, lifting the yield 4 basis points to 6.08%. The September bond futures contract today has traded in a tight 13-tick range, between 115 10/32 and 114 29/32. There are no major economic releases today.
Both Gilts (U.K. government bonds) and Bunds (Germany's version) sold off overnight after a poorly received Bund auction, two sources said. The German government sold 8.166 billion in euro-denominated 10-year Bunds. The euro was also recently lower against the dollar, which on margin should help Treasuries, but Karydakis said the market "doesn't see it that way right now."
Treasuries are in part being prevented from regaining the lost ground due to the heavy corporate supply calendar, said Dennis Hynes, chief investment strategist at
. The big kahuna in this equation is
, expected to sell as much as $7.5 billion in bonds and notes by Friday or Monday.
Investors have little interest in buying relatively low-yielding Treasury bonds when they can get an only slightly more risky bond with a higher yield (such as Federal agency
$3 billion deal, expected to be priced later today). Additionally, there's a practice called rate-locking, where underwriters sell Treasuries in advance of taking on the risk of underwriting a corporate or agency bond offering. If yields move higher in the interim and underwriters are forced to sell the corporate deal more cheaply, they can at least buy back the now-cheaper Treasuries to offset the loss.
"These deals are keeping downside pressure on prices because people are locking in rates," Hynes said. "The Ford deal is keeping things completely catatonic."
The Treasury will sell $7 billion in Treasury Inflation-Protected Securities this afternoon, but Karydakis said TIPS are "almost always viewed as a separate class of securities," so he didn't believe it responsible for Treasury weakness.