The Dow's pain was a boon for most of the Treasury market today.
Down rather sharply early in the session, the benchmark 10-year Treasury note and shorter-maturity issues moved into positive territory once the
Dow Jones Industrial Average
factored in the far-fallen price of
Procter & Gamble
and never looked back.
But the erstwhile benchmark, the 30-year Treasury bond, ended lower despite the
announcement of details of its plan to buy some of its securities back from investors.
Today's only major economic report, the revision to fourth-quarter
productivity and unit labor costs
numbers, was better than expected. Nonfarm business productivity rose at a 6.4% rate during the fourth quarter, the
Bureau of Labor Statistics
reported, not 5.0% as originally estimated. That is the fastest pace since the fourth quarter of 1992, when productivity rose 7.4%. Economists polled by
had forecast a pace of 6.3% on average.
Unit labor costs, which moderate when productivity accelerates, fell at a rate of 2.5%, not 1.0% as first estimated. That's the biggest decline since the fourth quarter of 1992, when unit labor costs fell at a 3.9% rate. The consensus forecast was for a 2.2% decline.
Historically, both the stock and bond markets have rallied on improving productivity and unit labor costs data. But in his
testimony last month,
suggested that from a bond-market perspective, rising productivity has a dark side.
Because it makes investors willing to pay higher prices for stocks, rising productivity encourages consumer spending in excess of the economy's current ability to produce, even as it works to keep the economy from overheating. That is potentially inflationary.
"The problem is that the pickup in productivity tends to create even greater increases in aggregate demand than in potential aggregate supply," Greenspan said. "This occurs principally because a rise in structural productivity growth has its counterpart in higher expectations for long-term corporate earnings. This, in turn, not only spurs business investment but also increases stock prices and the market value of assets held by households, creating additional purchasing power for which no additional goods or services have yet been produced."
So the bond market shrugged off the productivity revisions, even dropping some as the
Then, at 9 a.m. EST, the Treasury Department announced that its first debt buyback in 70 years will take place on Thursday. Acting through the
Open Market Desk
New York Fed
, the department will buy up to $1 billion of 30-year bonds maturing between February 2015 and February 2020. The department had previously announced that it would buy back up to $30 billion of securities this year, in increments of about $1 billion.
The buyback program is one of the ways the Treasury Department is dealing with the federal budget surplus, which reduces its need to issue bonds. Simply reducing new issuance has the disadvantage of impairing the liquidity of Treasury securities.
From that point on, though, the action was "all about the Dow,"
Warburg Dillon Read
Treasury market strategist Mark Mahoney said. "It helped fives and 10s, which have been stinking up the place the last couple of days, get a better bid," he said, referring to the five- and 10-year notes.
Money sometimes flows into the Treasury market when stocks sell off on the theory that a sustained decline in stock prices has the potential to limit the amount by which the Fed will raise the
fed funds rate
in the coming months.
At the same time, though, the rally in oil continued, lifting its price to a new multi-year high, with negative implications for inflation and thus for the interest-rate outlook.
The benchmark 10-year Treasury note, which traded down as much as 10/32 this morning, ended up 10/32 at 100 30/32, trimming its yield 4.3 basis points to 6.371%. The 30-year Treasury bond, down as much as 20/32 after the buyback announcement, ended down 2/32 at 101 12/32, lifting its yield a fraction of basis point to 6.148%.
Chicago Board of Trade
, the June
Treasury futures contract fell 2/32 to 94 25/32.
Also today, the
BTM/Schroder Chain Store Sales Index
rose just 0.1% in the first week of March. The
Redbook Retail Average
fell 0.3% during the first week of March relative to February.
Currency and Commodities
The dollar fell against the yen and gained against the euro. It lately was worth 106.17 yen, down from 107.43 yesterday. The euro was worth $0.9589, down from $0.9592 yesterday. For more on currencies, please take a look at
Currency Watch column.
Crude oil for April delivery at the
New York Mercantile Exchange
hit $34.13 a barrel, up from $32.18 yesterday.
Bridge Commodity Research Bureau Index
rose to 215.61 from 214.49 yesterday.
Gold for April delivery at the
reached $293.70 from $289.40 yesterday.