Treasury prices advanced slightly today for no clear reason, with the yield on most issues shedding two or three basis points on top of
Friday's major advance, which took most yields down 10 basis points. Volume was light, indicating lack of interest.
Market-watchers attributed the move to good vibes left over from Friday, when the benchmark 30-year Treasury soared more than two full points after the release of the February
. Today the long bond, which ended Friday about a point and a quarter higher, tacked on an additional 4/32 to 95 1/32, leaving its yield unchanged at 5.60%. Shorter-maturity notes, which are more actively traded than the long bond, outperformed.
"We still have a slightly positive tone from the good numbers on Friday -- and the fact that it's not another record day in the equity market," said John Burgess, head of fixed-income at
. (Burgess spoke before the
sneaked into record territory.)
With no economic indicators on the calendar and
3 p.m. EST
speech to the
Mortgage Bankers Association
in Washington silent on monetary policy, the only news of interest to bond traders was a set of bearish comments by
St. Louis Fed
. Coming across the
Market News Service
wire starting at around 11:30 a.m., the comments caused prices to pare their gains. In an exclusive interview at a conference in Virginia, Poole said the Fed's next move is more likely to be a rate hike than a cut.
Conceding that inflation is not currently a problem, Poole told the wire service: "The Fed's goal, in my view, ought to be ahead of the inflation curve, so that the discussion we often see in the marketplace that the inflation numbers are benign and that therefore there is no need for the Fed to act seems to me to not reflect a sound policy outlook."
The damage to the market was limited, though. Poole is not currently a voting member of the Fed's monetary policy committee, but more importantly, Fed-watchers know him as a hawk with a penchant -- as St. Louis Fed officials historically have had -- for believing that rapid money supply growth is bound to lead to higher inflation. The problem: Money growth has been advancing sharply for the last three years while inflation has been trending lower.
If the Fed made policy based on money-supply growth, said Jim Kochan, senior bond strategist at
Robert W. Baird
in Milwaukee, "they would've been tightening two years ago and it would have been a mistake. M2 growth has yet to result in any significant increase in the rate of inflation."
Kochan thinks an unnamed Fed official's comment to
this week that the
Federal Open Market Committee's
next move is "a genuine crapshoot" is "a more accurate reflection of the sentiment among FOMC members" than Poole's comments are.
Burgess agrees. Poole is "clearly a hawk, and the market seemed not to pay a lot of attention to him," he said, adding: "Without the smoking gun, it's politically difficult for the Fed to say, 'We're going to put the brakes on prosperity.'"
Both market-watchers see a run by the long bond at the 5.5% yield level last seen two weeks ago as the theme for trading in the coming days. "I really thought we'd see more follow-through today, because the outlook for the market is not that negative," Kochan said. As March draws to a close, he said, the focus will shift to the huge paydown that is likely to occur during the second quarter, when surging tax revenues should make it unnecessary for the Treasury to replace all of its maturing issues with new ones.
The forecast of a 5.5% long bond yield, he said, is based on "a stable Fed, the outlook for supply in the Treasury market in the quarter ahead, and the view that the Fed is willing to live with strong growth as long as there's no inflation."