The long Treasury bond was a touch higher this morning ahead of the final leg of the quarterly refunding this afternoon, thanks in part to a weaker-than-expected January
report. But it lately has fallen to break-even, and market-watchers won't be surprised if it continues to drift lower until the bidding deadline. The refunding's first two legs got a lukewarm reception, and the last one may suffer the same fate.
The 30-year bond was unchanged at 98 9/32, its yield at 5.36%.
is testifying at a House Banking Committee hearing on financial modernization, but his prepared
remarks contain no reference to monetary policy and so far he has not addressed it in the ongoing Q&A.
Traders took a bit of comfort from the news that retail sales excluding autos rose just 0.2% in January, vs. expectations for a 0.6% gain among economists surveyed by
. Sales also rose 0.2% overall, in line with expectations.
'The depth of the bidding was not very good and there was no follow-through,' Daiwa's Marcello Frustaci said of yesterday's refunding auction. 'If we see the same pattern today, it could get very serious. We're at a level now where if we can't maintain support, we could get to 5.5%, 5.625% fairly quickly.'
At the same time, some are taking advantage of the fact that the long bond's yield is at the upper end of its recent trading range, said David Ging, Treasury market strategist at
Donaldson Lufkin & Jenrette
. "People are playing the range, essentially," he said. "For outstanding bonds, they're right at 5.40%, the low end of the range, so why not buy there? The Fed's on hold, and if the Fed's on hold, the market's not going to be trending. That's why people play the range."
The refunding, the
quarterly auction of five- and 10-year notes and 30-year bonds, concludes today with the sale of $10 billion of new long bonds. Bids are due at 1 p.m. The new bonds -- which can be traded before they are formally issued -- were lately trading at a yield of 5.28%.
It won't be surprising if yields rise as the bidding deadline approaches because that was the pattern yesterday, when the Treasury auctioned 10-year notes.
Some traders see the market as extraordinarily vulnerable at the moment because of the persistent strength of both the economy and the stock market, the rangy action of the last several weeks notwithstanding.
The vulnerability showed in the results of the first two auctions, traders say. They're apprehensive about what could happen if this afternoon's results are especially poor.
"The auctions themselves were OK because they came slightly through the market," said Marcello Frustaci, senior vice president at
Daiwa Securities America
. Translation from traderspeak: The Treasury got an interest rate slightly lower than the prevailing rate at the bidding deadline. But two other key measures of an auction's success -- the bid-to-cover ratio and the amount of noncompetitive bids -- were unimpressive.
"The depth of the bidding was not very good and there was no follow-through," Frustaci said. "If we see the same pattern today, it could get very serious. We're at a level now where if we can't maintain support, we could get to 5.5%, 5.625% fairly quickly."
Expectations as reported by