Investors, Seeking Yield, Shun Treasuries

Trading is lackluster in thin volume.
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Bonds are mildly lower in thin volume, as Friday's limited flight-to-quality rally is eroding. Investors are buying corporate and agency debt in lieu of Treasuries, viewing those spreads as attractive again after a selloff in those sectors last week.

Lately the 30-year Treasury bond was down 3/32 to trade at 92 26/32, recovering from some earlier losses. The yield is at 5.76%. With European markets closed for a holiday, this morning arrived quietly and has stayed that way. Tracker

GovPX

reported volume down 18%, as $13.4 billion in securities changed hands by 10 a.m. EDT.

There's not much in the way of catalysts out there for the bond market today. The stock market is directionless, there's no economic data, and only a couple of speeches from

Federal Reserve

officials, expected later in the day. So the activity is dominated by investors moving money back into the corporate markets -- which were beaten up at the end of last week -- and away from Treasuries.

"There's an opportunity to put money back into the spread market," said Ken Logan, managing analyst at

Thomson Global Markets

. "Mortgages are up slightly, and other spreads are holding firm."

The Federal Reserve's decision to adopt a bias in favor of tightening interest rates caused investors, heartened by the Fed's attentiveness to inflation, to buy Treasuries. Yields on higher-rated corporate bonds rose by about 5 basis points, according to

Moody's Investors Service

. But "it's hard to say what the real cause was," Logan added. "There's conjecture that when the Fed did move to a tightening bias it started an exodus out of spread product into Treasuries from anxious investors."

Rumors of devaluation in Argentina hurt emerging market debt, causing spreads there to widen by about 150 basis points last week. Long-dated junk bonds widened by 20 basis points, according to

Bear Stearns

.

There'll be a good deal of supply to choose from this week. The Treasury will auction $15 billion in two-year notes Wednesday.

Freddie Mac

(FRE)

will sell $1 billion in notes tomorrow. At least $6 billion in supply is expected later this week.