Long Treasury Yield Makes New High for the Year

Rising commodity prices, heavy corporate issuance and apprehension of strong economic numbers combined to push the 30-year interest rate to 6.27%.
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So much for that particular record.

The benchmark 30-year Treasury bond's yield reached a new high for the year today as its price tumbled in response to rising commodity prices, a heavy corporate new issue calendar and anticipation of big economic numbers in the days ahead.

No major economic reports were released today, but a key commodity price index, the

Bridge/Commodity Research Bureau Index

, closed at a new high for the year. Even though the

gain owed much to sharply rising coffee prices (drought conditions in Brazil are threatening the crop), a record is a record, and the long bond shed 19/32 to 98 1/32, lifting its yield 4 basis points to 6.27%. The previous high closing yield of 6.26% was set on Aug. 12.

The Bridge/CRB Index rose 4.17 to 209.37, its highest close since July 1998.

"It's really a global phenomenon," said Tony Crescenzi, chief bond market strategist at

Miller Tabak Hirsch

. "There's a global economic upturn under way, particularly in industrial production, and that's pushing commodity prices higher."

The decline in Treasuries accelerated over the course of the day as the Treasury bond futures contract listed on the

Chicago Board of Trade

made new lows for the year, triggering automatic selling, Crescenzi said.

A heavy slate of new corporate and federal agency issuance helped force prices lower as some investors sold Treasuries in order to make room for the new issues, which included a $5 billion 3-year note from

Freddie Mac

(FRE)

and a $1 billion 5-year bond from the

Inter-American Development Bank

. "There were a lot of corporate issues and that caught people having to sell where they didn't want to, at the lows," said Michael Pianin, vice president at

ING Futures & Options

.

Also forcing prices lower was apprehension of key economic reports due out tomorrow and Friday -- the

retail sales

report and the

Producer Price Index

, both for September.

Economists surveyed by

Reuters

are predicting, on average, that overall retail sales will be unchanged, and that sales of everything but motor vehicles will rise 0.3%. But John Liscio, publisher of

The Liscio Report

, an economic newsletter, turned some heads with the forecast that sales will rise 0.7% overall and 0.9% excluding autos. "The wild card is the hurricane," he said in an interview, explaining that while Hurricane Floyd probably depressed sales during the early part of the month, purchases related to rebuilding during the subsequent three weeks may greatly inflate the final numbers.

As for the PPI, it is expected to advance as much or more in September than it has all year -- 0.5% overall and 0.4% at its core, which excludes volatile food and energy prices -- due in large measure to a one-time tobacco price hike. But

Merrill Lynch

senior economist Martin Mauro said, "It's a case now where the whisper number is higher."

So the question becomes whether all the selling that has preceded the retail sales and PPI releases inoculates the Treasury market from another bout of retching in the event that the numbers are as strong as expected or even stronger.

"You can get a slight degree of comfort knowing that the market is pricing in bad news for Friday," Crescenzi said.