Treasury yields improved today on heavy volume in a rally analysts said was driven primarily by short-covering after
yesterday's rout, which jacked yields up to their highest levels in seven months.
The benchmark 30-year bond ended the day up 22/32 at 94 21/32, dropping its yield 5 basis points to 5.62%.
The rally was aided slightly by a significantly weaker-than-expected January
new home sales
report, but it was contained by a midday story by a journalist with connections at the
. The story by Steven Beckner, Fed correspondent for the wire service
Market News International
and author of a book on Fed Chairman
, took a hatchet to the persistent rumor that Greenspan was unpleasantly surprised by the bond market's negative reaction to his
Humphrey-Hawkins testimony on the U.S. economy and monetary policy last week.
In the days after the Fed chairman said the central bank would "continue to evaluate ... whether the full extent of the policy easings undertaken last fall to address the seizing-up of the financial markets remains appropriate as those disturbances abate," Treasury bond and note yields rose 25 to 30 basis points.
"Greenspan was said to be dismayed by this interpretation of his remarks," Beckner wrote. "Wrong. While it is true that, in reality, Greenspan gave a much more balanced presentation of the upside and downside risks to the economy, it can be confidently stated that he was neither surprised nor disappointed that many market participants zeroed in on his more hawkish-sounding comments."
"The fact is," Beckner went on to say, "there are those at the Fed who have been privately pleased with the rise in market rates."
The main effect of the story, which moved at 11:42 a.m. EST, was to reverse the outperformance by the short end of the yield curve, where yields are mainly a function of expectations about the Fed. The curve, which had steepened in the morning as short maturities outperformed, flattened again in the afternoon as they pared their gains.
The rally itself was mainly technical and professional-driven in nature, as traders moved to take advantage of yesterday's rise in yields, said Ken Logan, managing analyst at
Thomson Global Markets
in Boston. "It was mainly short-covering," he said, adding that "the tone was set early on" by a large buyer of two-year notes.
"For the most part, the volume today reflected balancing of books or repositioning of different trades by leveraged accounts that want to fine-tune before the payroll number," Logan continued, referring to the February
due out Friday. "There is a fair contingent of players who think the lows might be in, so there's a reluctance to be short." Tracker
saw $81.5 billion of Treasuries change hands by 3 p.m., 10.6% above average for a first-quarter Tuesday.
The new home sales report provided a boost by slipping to 918,000 in January, from a revised 966,000 in February. A rate of 975,000 had been forecast by economists surveyed by
. But while new home sales are a leading indicator of consumer spending and have fallen for two months in a row now, the January level remains extraordinarily high by historical standards.
Interestingly, Treasury traders don't appear to be taking much comfort from the latest selloff in the Brazilian real, which for the last two days has sunk below its worst levels of late January, when the country decided to allow it to float freely. At the time, Treasuries benefited from a sharpened investor appetite for safety and liquidity. The real closed at 2.15 to the dollar, after trading as low as 2.20.
Neil George, international funds director at
Guinness Flight Global Asset Management
, says that's because the focus has shifted onto domestic economic conditions to the exclusion of almost all else. Despite reports that companies like
and a host of European concerns are having trouble in Brazil, "that's being pushed to the back burner," George said. "There's a general belief that everything is going to be fine and dandy for U.S. stocks."
"It's probably not a rational market, and I think it's providing some opportunities to buy in," the manager added.