Treasury prices hovered near the grid line for most of the day before the long bond finally slipped further than the others, finishing almost half a point lower. In the absence of any economic news, the pressure on the money market came from equities, which were steadily positive through all sessions.
"There is not much to discuss. Stocks are having a good day and bonds are having a bad one," said Scott Grannis, director and bond portfolio manager at
Western Asset Management
The benchmark 10-year
Treasury note fell 5/32 to 99 18/32, raising its yield 2.2 basis points to 5.054%.
Treasury bond fell 13/32 to 99 11/32, raising its yield 3.1 basis points to 5.418%.
Bonds had spent the earlier part of last week in negative territory as well, though it was pre-auction selling that caused much of that damage. With the Treasury's quarterly sales finished, the market may begin a firming pattern after getting past
Federal Reserve chairman
Alan Greenspan's testimony tomorrow. The lineup of new corporate bond issues over the next few days is also thinner at about $7 billion, down from the $14 billion sold last week. The introduction of corporate debt into the market usually subdues Treasuries.
Traders are awaiting Greenspan's address before the
Senate Banking Committee
with the hope that the central bank chief will reiterate the need for more interest rate cuts to boost the economy. Analysts are also wondering how he will elaborate upon the subtle improvements in the economy that have taken place this year.
"January was stronger than most people were expecting. Some weeks ago, in late December, when bonds were doing really well, the market was pricing in a more severe and prolonged downturn. But those fears have faded now and the economy seems to be moving towards normal," said Grannis.
He nevertheless thinks that Greenspan will not have anything new to say, since he has already hinted at the recovery in recent statements.
John Berry, a veteran watcher of the goings-on at the Fed, ruled out an intermeeting interest rate cut. He wrote in his Sunday column that the same kind of "anecdotal evidence" that caused interest rates to be lowered on Jan. 3 has "turned from seriously gloomy to at least slightly positive."
There is no doubt that top central bank officials are satisfied with recent economic data.
Cathy Minehan, President of the
Boston Federal Reserve Bank
and a voting member of the Fed's monetary policy committee, said today that the Fed's 100 basis-point lowering of interest rates in January is already producing encouraging results. She predicted that
gross domestic product
) growth this year should be around 2%. Echoing recent statements by Greenspan, Minehan asserted that inflation was "well behaved." This was good news to Fed watchers, since figures released last week showed unit labor costs on the rise, a trend usually perceived as inflationary.
Minehan did add that the recent build-up in inventories and the "retrenchment in business and consumer attitudes" would challenge the U.S. economy in the short run. The encouraging rejoinder there, according to economists at Merrill Lynch, is that due to companies reacting much more quickly to adverse conditions than in the past, inventory balances can be evened out in about two quarters now, compared with five quarters a decade ago.
There is some speculation that Fed officials have been bullish to avoid giving the markets the impression that the economy is in fragile shape and that monetary help is therefore imperative. Such a self-fulfilling prophecy has forced their hands in the past, when traders priced in imminent rate cuts and dragged economic expectations so low that even if the Fed resisted and moved later rather than sooner, it was forced to opt for a greater interest rate cut to reignite economic sentiment.
An important report due tomorrow is the retail sales for January. Consumer spending has been slowing of late and one reason, at least in the Northeast, could be the high heating bills that have cut into shopping budgets. Grannis sees another possible cause.
He reasons that with the introduction of the tax reduction bill, people are deferring their expenditures until later, when the tax breaks are activated. "The tax question of the new administration is thus having a perverse effect on current consumer performance. But the cut will be a stimulus in the long run," he noted.
"However, commodity prices, which are a pretty good indicator of economic conditions, are lower, and that says where the economy is going for now," Grannis added.
Chicago Board of Trade
, the March
Treasury futures contract fell 19/32 to 104 13/32.
Currency and Commodities
The dollar fell against the yen and the euro. It lately was worth 117.42 yen, down from 117.57. The euro was worth $0.9308, up from $0.9245. For more on currencies, see
Crude oil for March delivery at the
New York Mercantile Exchange
fell to $30.45 a barrel from $31.03.
Bridge Commodity Research Bureau Index
fell to 223.26 from 224.31.
Gold for March delivery at the
rose to $260.70 an ounce from $259.90.