A list of conflicting influences on Treasury prices netted to zero today, leaving the bond market (with the exception of the stumbling 30-year Treasury bond) narrowly mixed. Oil prices fell, which was positive. But the corporate bond calendar continued to swell, which is potentially negative.
A couple of
governors piped up with comments on the economy, but one was bullish and the other was bearish.
While no major economic reports were released, the various influences on Treasuries led to heavier-than-usual volume. According to tracker
, $29.3 billion of Treasuries changed hands through 3 p.m., 21.7% more than average for a Tuesday over the past month.
The benchmark 10-year Treasury note fell 1/32 to 99 24/32, lifting its yield a fraction of a basis point to 5.781%. Shorter-maturity issues were unchanged to slightly higher in price.
The 30-year Treasury bond fell 10/32 to 107 2/32 on light volume, lifting its yield 2.1 basis points to 5.759%. And at the
Chicago Board of Trade
, the December
Treasury futures contract fell 4/32 to 99 21/32.
Oil, which gave back a large chunk of yesterday's 4.5% gain but remains near a 10-year high, continued to provide a focus for the bond market in the absence of major economic news. (The next major economic reports --
retail sales and the
Consumer Price Indices, all for August, are due out on Thursday and Friday.)
But, because rising oil prices can have both negative and positive implications for the bond market, the close attention bond traders are paying to oil doesn't always translate into market activity.
"It's more of a talking point than a trading point right now,"
Treasury market analyst Ken Logan said. "Depending on your outlook on the market it's either bullish or bearish."
The bearish implication of rising oil prices for the bond market is their potential to drive up the prices of things other than oil by increasing the cost of producing them. The bullish implication is the potential of high energy prices to slow economic growth.
The fact that Treasury yields remain near their lowest levels of the year while oil prices explore record high territory testifies to the power of the bull case, bond market analysts note.
The bear case has been handicapped by increased worker productivity, which enables producers to absorb higher costs rather than passing them on,
bond portfolio manager Roger Bayston said. "The productivity enhancements we've been putting into the service sector by embedding technology into workplaces is having a higher influence than oil prices."
But it remains to be seen whether the bull case for bonds will triumph, Bayston said. Short-term Treasury yields below the
fed funds rate indicate that market participants are forecasting a drop in the fed funds rate, which is not assured, he said. "We think the conditions of the U.S. consumer" -- specifically incomes and real-estate and stock valuations -- "continue to be pretty strong. We don't see that falling off the map."
Fedspeak out of the
National Association for Business Economics
conference underway in Chicago was mixed on that point today.
, president of the
, in an interview in today's
Wall Street Journal
, raised the specter of interest-rate cuts, assuming that energy prices peak and the inflation rate declines. But
in comments this morning said the risk of too-high inflation is still greater than the risk of too-slow growth. Neither McTeer nor Moskow is a voting member of the
Federal Open Market Committee this year.
On the supply front, some $13 billion of corporate bonds are expected to be issued this week, vs. a year-to-date average of $7.5 billion, according to
. Heavy corporate issuance can wreak havoc with Treasuries if investors sell Treasuries in order to buy new corporate bonds. The Treasury market "is pretty cautious right now," IFR's Logan said. "It's definitely anticipating quite a bit of supply over the next week or so."
The weekly retail sales reports delivered respectable results. The
BTM Weekly U.S. Retail Chain Store Sales Index
chart ) rose 0.3% in the latest week, its largest gain in six weeks. The
Redbook Retail Average
chart ) found September sales running 1.3% ahead of August after two weeks.
Currency and Commodities
The dollar rose against the yen and fell against the euro. It lately was worth 106.78 yen, up from 106.04. The euro was worth $0.8638, up from $0.8579. For more on currencies, see
Crude oil for October delivery at the
New York Mercantile Exchange
fell to $34.28 a barrel from $35.14.
Bridge Commodity Research Bureau Index
fell to 230.74 from 230.93.
Gold for December delivery at the
fell to $276.60 from $276.80.