Treasuries End Abbreviated Session on Happy Note

Bucking the usual 'stocks up, Treasuries down' trend; both stocks and bonds have had a strong day.
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Treasury notes and bonds ended higher as investors and traders played out a cheerful prelude to the holidays. Bonds and stocks usually move in a seesawing mode, but today was clearly an exception.

As equities looked upwards for the second day in a row, the bonds were not to be denied their role in the 'Santa Claus' rally. After losing some ground to profit-taking in the morning, bond prices pulled strongly away into positive territory. The yields continued their recent habit of recording annual lows by the day.

The economic data on orders for durable goods and consumers' income and spending came in a little better than expected, but hardly made a dent on the overall perception of a slowing economy. "Ultimately the Fed will be easing interest rates, no doubt about that. But that's not going to happen until the end of January. So for now, the question is how aggressive their comments are going to be," said Bill Kirby, co-head of government bond trading at

Prudential Securities

.

Kirby thought the markets would come down next week, since the story about weak earnings and data wasn't going to change. "The bonds are overdone on the upside, and the market will be under pressure and probably come down next week. There are pockets of liquidity out there," he said.

The benchmark 10-year

Treasury note rose 6/32 to 105 18/32, lowering its yield to 5.014%.

The 30-year

Treasury bond rose 9/32 to 112 16/32, lowering its yield to 5.396%.

Gib Clark, head government bond trader at

Zions National Bank

, saw a fair bit of short covering in bonds today and didn't think it was a "happy rally...There was a lot of buying, which was poring in from equity investors. Nobody was selling, so shorts had to be made," he said, adding that the stock market rally should have put more pressure on the bonds, but it didn't.

At the

Chicago Board of Trade

, the March

Treasury futures contract rose 6/32 to 105 19/32.

Economic Indicators

In economic news, the

durable goods orders

(

definition |

chart |

source

) rose 2.3% in November, more than the 1.6% gain projected by economists polled by

Reuters

. Excluding orders for expensive transportation equipment, which rose 9.1%, new orders were up 0.4% for the month. The year-on-year growth of durables was 1.0%, a little higher than what was recorded last month but still the second lowest level since Nov. 1998.

The

personal income and consumption

(

definition |

chart |

source

) for November showed that salaries increased after having gone down in October. Personal Income grew 0.4% while spending increased 0.3%. Consumer spending has been low for the year and, except for a couple of spikes in summer and fall, is back to an unusually low level for year-end. Analysts said the decreasing "wealth effect" and the rise in energy prices had a hand. They also noted that if the stock market keeps declining, we could see a rise in personal savings in the coming year as the consumption growth rate falls below that of income.

The

Consumer Sentiment Index

(

definition |

chart ) for December dropped to 98.4 from a November reading of 107.6, its lowest level in more than two years.

Currency and Commodities

The dollar rose against the yen and fell against the euro. It lately was worth 112.81 yen, up from 112.31. The euro was worth $0.9238, up from $0.9160. For more on currencies, see

TSC's

Currencies column.

Crude oil for January delivery at the

New York Mercantile Exchange

remained unchanged at $25.77 a barrel.

The

Bridge Commodity Research Bureau Index

fell to 228.50 from 228.56.

Gold for February delivery at the

Comex

slipped to $275.50 an ounce from $275.70.