Long Bond Remains Below Fed Funds Rate

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In the absence of global financial turmoil, a host of factors led the benchmark 30-year Treasury bond to end the session modestly lower.

In late trading, the benchmark 30-year bond was off 12/32 to 100 18/32, yielding 5.46%, continuing to trade below the short-term federal funds lending rate of 5.5%. Meanwhile, shorter-dated maturities were firm overall today. Late in the session, the two-year note was up 1/32 to 100 11/32, yielding 5.19%; the five-year note was up 7/32 to 100 13/32, yielding 5.16%; and the 10-year was up 1/32 to 102 19/32, yielding 5.28%.

Expectations as reported by Reuters

Weakness on the long end today was due in part to profit-taking that coincided with yield-curve-steepening trades, said Michael Ryan, senior fixed-income strategist at

PaineWebber

.

Also hurting the long bond was the firmer U.S. equity market and a weaker dollar/yen. Recently, the dollar has fallen against the yen on fears of Japanese intervention. Intervention, however, is only a temporary solution to the yen's weakness, many market participants contend.

Political news out of the

Kremlin

yesterday had little impact on the market today. Yesterday, Russian President

Boris Yeltsin

sacked his cabinet, replacing reform-minded Prime Minister

Sergei Kiriyenko

with

Viktor Chernomyrdin

. This marks the second time during Yeltsin's tenure that Chernomyrdin has held the shaky honor of the Russian prime ministry: Yeltsin canned him in March.

Market participants today also wondered when Russia will unveil its debt repayment plan and what it will include.

On the economic front, on Tuesday, the July

existing home sales

and

consumer confidence

reports are slated for release. Ryan said this week's economic releases are "mostly background noise" and next week's releases will have more market impact. Next week sees the release of the August

National Association of Purchasing Management index

on Tuesday and the August

nonfarm payroll

report on Friday.

Looking ahead to the rest of this week, the bond market will be eyeing the dollar's movements, the U.S. equity market and the global financial markets, Ryan said.

But one wild card for the market, Ryan said, is this week's annual economic symposium out in Jackson Hole, Wyo., slated for Friday and Saturday. Headlines or sound bites coming out of the

Kansas City Fed

-sponsored gathering could have an unexpected impact on the market, he said.

Expectations as reported by Reuters