Treasuries Mix it Up as Hedgers Lift the Bond - TheStreet

The 30-year Treasury bond rallied but shorter-maturity issues were narrowly mixed at the end of a day that saw consumer confidence take a bigger-than-expected tumble and the launch of the largest-ever corporate bond issue.

The rally by the bond brought its yield back into a more normal relationship with shorter-maturity issues, one market analyst noted.

The benchmark 10-year Treasury note ended up 3/32 at 102 30/32, trimming its yield a fraction of a basis point to 6.089%. Shorter-maturity issues were unchanged or up slightly on the day. But the 30-year bond gained 18/32 to 104 8/32, dropping its yield 4 basis points to 5.943%. And at the

Chicago Board of Trade

, the September

Treasury futures contract gained 11/32 to 96 24/32.

In the only major economic news of the day, the

Consumer Confidence Index

fell to 138.8 in June from a revised 144.7 in May. Economists polled by

Reuters

had forecast a smaller drop, to 140.1, on average.

There was no real market reaction to the news. While bond mavens were certainly pleased that the index didn't rise from May's all-time high, 138.8 is still a very high level by historical standards.

Neither was there any reassessment in the

fed funds futures pits at the

Chicago Board of Trade

of the probable outcome of tomorrow's decision on interest rates by the

Federal Open Market Committee. Traders continue to expect that the FOMC will hold the rate steady at 6.5%.

Meanwhile,

Deutsche Telekom

(DT) - Get Report

started taking orders for a multi-currency bond issue that will contain the largest-ever dollar-denominated portion.

The deal, which is expected to be priced tomorrow, was increased in size during the day to total $14 billion at current exchange rates, and could be upped again to as much as $15 billion. It comprises $9.5 billion of dollar-denominated bonds, which unseats last summer's $8.6 billion sale by

Ford

(F) - Get Report

as the largest-ever dollar-denominated corporate bond issue. The dollar-denominated portion includes $3 billion of five-year bonds, $3 billion of 10-year bonds and $3.5 billion of 30-year bonds.

Deutsche Telekom is also hawking the equivalent of $2.6 billion of euro-denominated five- and 10-year bonds, the equivalent of $1.125 billion of five- and 30-year bonds denominated in sterling, and the equivalent of $806 million of five-year bonds in yen.

Demand for long Treasuries today may have come from the covering of short positions set by interested parties in the Deutsche Telekom deal, to protect themselves from a move down in bond prices that might have jeopardized it, said Richard Gilhooly, senior bond strategist at

Paribas Capital Markets

. Also boosting long Treasuries, there is a buyback later this week. The federal government is using surplus funds to buy long-maturity bonds back from investors. The buybacks have lifted bond prices relative to the prices of shorter-maturity instruments.

At the same time, Gilhooly noted, the Treasury's monthly auction of two-year notes is set for tomorrow. That helped keep the prices of short-maturity Treasuries from rising, because dealers resist paying higher prices in sectors they will soon be bidding on.

The bond's outperformance relative to the 10-year note in particular established a more normal difference in yield between the two, said David Ging, Treasury market strategist at

Donaldson Lufkin & Jenrette

. At current Treasury yield levels, the 30-year bond's yield ought to trail the 10-year notes by some 17 basis points, Ging said.

In recent trading sessions, selling of 30-year bonds, probably for hedging purposes, had lifted its yield to within 10 basis points of the 10-year note's, Ging said. Today's action was largely corrective, he said. "Once the hedging demand is satisfied,

the spread tends to collapse back in." The yield difference between the 10-year note and the 30-year bond ended the session at 14.6 basis points.

Economic Indicators

In other economic news, the two weekly retail sales reports detected scant activity. The

BTM Weekly U.S. Retail Chain Store Sales Index was unchanged in the latest week, while the

Redbook Retail Average found June sales running even with May after four weeks.

Currency and Commodities

The dollar fell against the yen and the euro. It lately was worth 105.27 yen, down from 105.66. The euro was worth $0.9453, up from $0.9365. For more on currencies, please take a look at

TSC's

Currencies column.

Crude oil for August delivery at the

New York Mercantile Exchange

rose to $32.06 a barrel from $31.63.

The

Bridge Commodity Research Bureau Index

rose to 226.02 from 225.03.

Gold for August delivery at the

Comex

rose to $287.50 an ounce from $285.50.