Long Treasury Yield Higher Than Year's Worst Close

Selling linked to a corporate bond deal, against the backdrop of recent strong economic data, takes the blame.
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Fresh ugliness in the bond market this morning.

Forced lower by selling that sources said was related to the pricing of a large federal agency bond issue and by foreign central banks, the long Treasury bond's price is down roughly three-quarters of a point, putting its yield a basis point above its highest close of the year. The benchmark 30-year bond was lately down 23/32 at 93 14/32, lifting its yield 5 basis points to 5.71%. Earlier it was down as much as 1 2/32.

While in the last several sessions economic releases including first-quarter

gross domestic product

and the national and Chicago

Purchasing Managers' Indices

have helped push Treasury prices to the lows of the trading range that's existed since late February, there's no apparent fundamental trigger for this latest move. No market-moving economic data is slated for release today.

Rather, sources said, the move is due to heavy selling in a thinly traded market. The big sellers were rumored to include underwriters of a $4 billion 5-year bond from

Fannie Mae

(FNM)

, which was launched this morning and is expected to be priced tomorrow. Market chatter had underwriters selling at least 10,000 five-year Treasury note futures contracts. In April, an average of only 47,000 five-year contracts changed hands each day on the

Chicago Board of Trade

.

Foreign central bank selling of cash long bonds is also being blamed for the selloff.

At the same time, traders have little incentive to buy the market, since next week brings the Treasury's quarterly refunding, when new five- and 10-year notes will be issued. The Treasury is scheduled to announce the details of the refunding at a press conference tomorrow morning.

Meanwhile, from a technical perspective, the very fact that the prices are at the lows of their recent trading range, defined as a yield of roughly 5.72% on the long bond, is undermining confidence in the market. "We're there now, were testing it, and it looks like the market still has some unfinished business on the downside before we get a summer rally going," said Michael Krauss, chief technical analyst at

Chase Securities

. He expects to see the long bond's yield in the 5.80% to 5.90% range before buyers come out in force. "Unless the market is saved by a very weak payroll number, which is not on the radar screen right now," he said. The nonfarm payroll number is a component of the monthly

employment report

, which the Labor Department will release on Friday. Economists surveyed by

Reuters

are predicting nonfarm payroll growth of 230,000 for April, on average, in line with the average for the last 12 months.