Weakness in European bond markets, higher oil prices and the prospect of a blockbuster corporate new issue later in the week from
are weighing on the Treasury market this morning, hoisting the benchmark long bond's yield further over 6%.
With no major economic indicators scheduled for release this week, "It's the kind of week (where) the market will be more subject to external factors like oil, supply, and overseas bond markets,"
Miller Tabak Hirsch
chief bond market strategist Tony Crescenzi said. (The economic data calendar gets interesting again starting next Wednesday, with the release of the
Producer Price Index
report for June.)
The benchmark long bond was lately lower by 14/32 at 89 4/32, lifting its yield 3 basis points to 6.04%. Shorter-maturity note yields were also higher, with the five-year note the worst performer on the day so far. Its yield was 5 basis points higher at 5.75%.
The five-year's underperformance is related to the Ford deal, which is expected to be priced this week. The details haven't been announced yet (a late-morning conference call between underwriters and the company was rumored to be in progress), but the deal is widely expected to have a five-year fixed-rate component. (A three-year floating rate component is also widely expected. There's less certainty about what else the deal will include.) Underwriters could hedge the five-year portion of the deal by selling five-year Treasuries, and it appears to Treasury-market watchers this morning that that's what's going on. (The rumors could not be immediately confirmed by Ford.)
This is the deal that Ford
pulled from the corporate calendar two weeks ago amid a weakening Treasury market and widening spreads. Spreads are the yield premium that corporate bond issuers pay investors to compensate them for credit risk.
The broader factors weighing on Treasuries this morning are today's rout in the European bond markets, triggered by the latest decline in the value of the euro, and the latest rise in oil prices, which stokes fear of higher prices in general.
After the euro fell to a new lifetime low of $1.022 yesterday, the German benchmark 10-year issue saw its yield rise by about 11 basis points to 4.69%. A weakening euro discourages investment in euro-denominated bonds by foreign investors.
As for oil, while the benchmark crude oil contract traded on the
New York Mercantile Exchange
was lately lower on the day, it's trading at its highest level since November 1997. Crude oil for August delivery was lately trading at 19.53, down from 19.69 on Friday.