The Treasury market continues to cry in its beer this morning. For the fourth straight day, bonds are suffering under the weight of corporate supply and increasing agita over the future of monetary policy. Ford Motor Credit, an arm of
, postponed its planned $3 billion debt sale indefinitely due to the current illiquid market conditions, although three sources believe the deal will go ahead in mid-July.
Lately the 30-year Treasury bond was down 24/32 to 88 5/32. The benchmark bond's yield rose 6 basis points to 6.12%. Impending supply is still weighing on the Treasury market, even as Ford put off its offering. The Treasury sells $15 billion at its monthly two-year note auction later today. Federal agencies
are expected to sell $2 billion to $3 billion, and $500 million this week. Ford officials did not return calls seeking comment.
Corporate treasurers have been hurrying to secure long-term financing before an expected Fed rate hike next week in case long-term lending rates rise as a result of that action. Ironically, their enthusiasm only made matters worse, because supply puts pressure on bond prices, lifting interest rates. In addition, the coming quarter-end puts a damper on investors' appetite for risk, as they try to preserve their performance.
"Dealers don't want to take positions before the quarter-end and nor do portfolio managers," said Richard Schwartz, vice president in the stable value group at
New York Life Asset Management
. "There's a lack of liquidity right now in the market. I think Ford was trying to sell a very large issue and they were doing it into an illiquid market -- they created a worse environment for themselves to some degree."
What with the market already worried about the Fed meeting, Ford's not the only one to blame. A published report released today suggested the
will follow a 25-basis-point rate hike at the June 29/30
Federal Open Market Committee
meeting with subsequent increases later this year. The bond market, left to its own devices (that is, without friendly economic data or direct testimony from Fed Chairman
), continues to view the interest-rate outlook as frighteningly negative.
"The market is back up here over 6.10% and not below 6%, and things feel weaker," said Christopher Harms, director and portfolio manager of investment-grade corporate debt at
Economists at the
forecast today that the Fed will hike interest rates by 75 basis points over time, according to
. The report has only added to the market's reestablished belief that the Fed is not going to quit after one 25-basis-point hike, a line of thinking that temporarily asserted itself last week after Greenspan's remarks to
Congress' Joint Economic Committee
"The market swung from thinking there would be a lot of Fed action toward thinking that we were going to have less Fed action, and now it's leaning back toward more movement," said Schwartz. He believes the Fed will hike the fed funds lending target by 50 basis points from the current 4.75% at next week's meeting.