Treasury prices ended lower, especially at the long end of the market, as traders continued to adjust portfolios and await more relevant economic news. Yields for the 10-year note and the long bond rose, while those for the shorter-term notes remained near their two-year lows.
The benchmark 10-year
Treasury note fell 25/32 to 104 28/32, raising its yield 10.6 basis points to 5.098%.
Treasury bond fell 1 2/32 to 110 28/32, raising its yield 6.6 basis points to 5.499%.
"The Producer Price Index data on Friday should change things," said Mike Franzese, intermediate government bond trader at
Zions First National Bank
, adding that the report is projected to be weak. If the numbers come out even lower than expectations, Treasury-buying would likely ensue.
Treasury managers are anticipating more influential economic statistics in order to perhaps resurrect the robust bond rally of the past few weeks, but other factors of late have caused them unease. The stock market, which usually sends bonds the other way, has been relatively stable since Monday.
Federal Reserve officials have also been trying to soothe investor concerns.
Cathy Minehan, president of the
Federal Reserve Bank of Boston
, commented on the economy this morning, predicting a moderate 2% - 3% growth during the year. She noted that a stable housing market, continuing business investment in computers and good productivity would offset poor corporate profits, tighter credit conditions and slower consumer spending and business investment.
The equity market took her statement more or less in stride, having already priced in such a scenario. But such Fed assurance may have bolstered current equity levels, thus preventing major backslides despite another round of glum corporate news in the tech sector today.
Franzese termed Minehan's statement, which was very similar to Atlanta Fed president Jack Guynn's assurances on Monday, as all part of "Greenspan's gig," referring to the chairman of the Fed. "It is for him to succeed or fail, and however he eventually moves, no one is going to stand in his way."
In more concrete terms, such hints have slightly decreased traders' expectations that the Central Bank will cut interest rates further at its meeting later this month. Most of them still believe the federal funds rate will be lowered half a percentage point at the
FOMC meeting Jan. 30-31, but as reflected in the latest fed funds futures contract, the chance of that 50 basis-point cut is now 75% as compared to 100% last Friday.
U.S. notes and bonds are also under selling pressure from the corporate and federal agency debt entering the money market lately. A total of $32 billion will have come into play by the week's end, displacing government bonds in the holdings of many traders. Although far riskier than the securities issued by the government, such higher yielding debt has become attractive for money managers who trust the Fed to steer the economy to better days soon.
Franzese is looking for the short-term market to have "the wind taken out of it" soon as a $9 billion buyback option on the long-term bonds kicks in. On the whole, though, he considers money instruments on reasonably secure ground. "We still see some
inverse correlation with equities, but everybody basically knows the smart money is in cash right now."
Chicago Board of Trade
, the March
Treasury futures contract fell 25/32 to 104 16/32.
In economic news, the
Mortgage Applications Survey
) detected increases in both refinancing and new mortgage activity. The Refinancing Index rose sharply to 1572.1 from the revised reading of 761.5 the previous week. This is the highest level reached since mid-Feb. 1999. Lower interest rates are encouraging a greater number of homeowners to seek better terms on their present mortgages. The Purchase Index rose to 292.8 from its 10-month low, also revised, of 218.7. Although out of the trough, the index has not moved high enough to reflect any distinct improvement in private real estate, which remains critically dependent on consumer confidence and income growth.
Currency and Commodities
The dollar rose against the euro but lost some of its recent gains against the yen. It lately was worth 116.43 yen, down from 116.83. The euro was worth $0.9370, down from $0.9452. For more on currencies, see
Crude oil for February delivery at the
New York Mercantile Exchange
rose to $29.35 a barrel from $27.64.
Bridge Commodity Research Bureau Index
rose to 229.52 from 228.99.
Gold for March delivery at the
fell to $265.60 an ounce from $268.50.