It just doesn't matter.
Stocks open strong, and bonds are down. The
dives 125 points, and bonds are down. All indices finish up, and bonds are...?
The 30-year benchmark treasury traded down 15/32 in a choppy day, as attention shifts toward next week's quarterly refunding and tomorrow's jumbo corporate bond offering from
. The 30-year bond was priced at 106 19/32 as of 6 p.m. EDT, with the yield rising to 5.66%.
Treasuries were cut down at the knees early on when Japanese finance minister
projected loftier tax cuts (to the tune of six trillion yen) than originally expected and the dollar traded off overnight as a result. Dollar/yen traded to 144, down 0.94.
"S&P futures opened OK, and there was a little fear in the dollar with the comments involving
Japanese tax cuts, so you're already in the hole," said Gary Pzegeo, vice president and portfolio manager at
Keystone Investment Management
. "The stock market opened with a decent tone, and that kept bonds underwater all day."
Even when stocks dipped, bonds couldn't muster a rally. The bond almost recovered to break-even, but traded down when stocks turned upward. "The stock market trades made people skittish in both directions," said one trader. "But over the last week, stocks are a lot weaker, and we're basically up a little bit, but struggling."
Market sources said some curve-steepening trades both last night and today also hurt the long bond. There were rumors of at least one hedge fund putting money in two-year notes and selling 30-year bonds, and "other folks may be jumping on," said the trader. The yield curve between the 2-year note and long bond widened to 24 basis points yesterday.
"The steepening trade was heavily advocated," said Mark Mahoney, treasury market strategist at
Warburg Dillon Read
. "If the curve steepens during the refunding, then everybody's going to be happy."
Because the Treasury will price the notes attractively. Details of the $37 billion refunding were announced today, which includes paying down $45 billion in debt in the July-September quarter.
"This will be the first time since 1973 that we will pay down net market borrowing in the July-September quarter," Gary Gensler, assistant Treasury secretary for financial markets, said in a statement.
The Treasury will sell $16 billion in five-year notes, reopen the 5.625% May 15, 2008, 10-year note and sell $11 billion, and sell $10 billion in 30-year bonds. The refunding begins Monday with the five-year auction, and more continental drift in the long end of the yield curve may result. But as has been the case, bond yields are expected to remain constant in the current environment. One strategist pointed out that investors aren't crying about this.
"We're still relatively close to the all-time highs," said Jack McIntyre, market strategist at
. "If the market was bearish, we wouldn't be at these levels; we'd be closer to a 6% yield."
nonfarm payroll report
, scheduled for release Friday, isn't expected to impact the market because the
strike will render the nonfarm payroll data useless. A reaction from bond traders would occur only if the
or another series unfettered by GM (there isn't much) moves abruptly. The unemployment rate rose to 4.5% in June.
Federal Reserve's Beige Book
, a summary of economic sentiment compiled from the Federal Reserve districts around the nation, attracted little fanfare, probably because it repeated what Fed officials, including
Chairman Alan Greenspan
, have said in recent statements. Most districts said manufacturing was slowed due to dampened demand from exports and the GM strike. Service industries reported strong growth while the agricultural conditions were mixed, although flooding in several regions, including Florida and the Midwest, hurt farming production.
As expected, the labor market remained tight in most districts, with skilled workers at a premium and jobs for unskilled labor scarce. The summary from the
provided anecdotal evidence, quoting a Columbia, S.C.-based lumber retailer who said the poor quality of available workers is "what you would expect with a 2% unemployment rate."
Tomorrow's economic data include
initial jobless claims
to be released at 8:30 a.m. The market is expecting 314,000 in claims. Last week, claims totaled 304,000, less than the 315,000 estimate.
, the advance report from the
that updates durable goods orders will also be released tomorrow. This indicator adds information about shipments and unfilled orders for nondurable goods such as clothing and pharmaceuticals. This volatile series is expected to come in at unchanged, better than the -1.6% figure reported in May.
Expectations as reported by Reuters