Treasuries fell for the third session in a row as investors reacted to rising oil prices and the prospect for heavy issuance of corporate bonds.
Market analysts also noted selling of Treasuries in order to buy European and Japanese government bonds, whose yields have not fallen as much as Treasury yields have recently.
But with no major economic data on the calendar and none slated till the second half of next week, interest in Treasuries was muted and expected to remain so for the next few sessions.
The benchmark 10-year Treasury note fell 6/32 to 99 30/32, lifting its yield 2.6 basis points to 5.756%. Shorter-maturity issues underperformed, as investors discounted slightly higher odds that the
Fed will hike interest rates again. Those odds remain quite low, however, with the December
fed funds futures contract indicating a one-in-four chance of a 6.75% fed funds rate by year-end.
The 30-year Treasury bond fell 5/32 to 107 18/32, lifting its yield a basis point to 5.717%. And at the
Chicago Board of Trade
, the December
Treasury futures contract slid 7/32 to 99 29/32.
Oil was a focal point for bond investors, with the front-month crude contract on the
New York Mercantile Exchange
hitting a new 10-year high ahead of the weekend meeting of
ministers in Vienna. Oil is "catching more and more people's attention,"
Banc One Capital Markets
economist Anthony Karydakis said.
Even though rising oil prices have the potential to cripple the economy as they did in the early 90s, a scenario in which bonds should perform well, bond investors continue to focus on the potential for higher energy prices to ignite inflation more broadly, making bonds less appealing.
"The knee-jerk, instantaneous reaction is to think of the inflationary implications" of higher oil prices, Karydakis said. They "should also work toward the desirable objective of slowing the economy, but that is a likely second-round effect, and more ambigous."
Some think that's a mistake. Spiking oil prices caused the last recession in 1990 and 1991 and could do so again,
Paribas Capital Markets
bond strategist Richard Gilhooly said. "Chances of a global recession or slowdown are quite high, and they get higher as oil goes up," he said.
At the same time, rising energy prices will squeeze corporate profit margins, hurting stock prices. "If anything it should be bullish" for bonds, Gilhooly said.
He interpreted today's selloff as due primarily to stage-setting for corporate bond issuance, which is expected to be heavy this month. So far this year, an average of $33 billion of corporate bonds have been issued a month. According to
, issuers have slated some $35 billion for September so far, and that figure could easily climb to $40 billion. June was the heaviest month of the year so far with $48 billion.
Much of the corporate bond supply that market analysts expect is from European telecom companies, which collectively need to issue at least $40 billion of new bonds this year to finance new wireless franchises.
Today's underperformance of intermediate-term Treasuries is consistent with a heavy corporate bond calendar, since intermediate-term Treasuries compete most directly with corporate bonds for investor dollars.
Initial jobless claims
) fell slightly in the latest week, but the four-week average rose to a new 19-month high. First-time claims fell to 316,000 from 319,000, while the four-week average rose to 317,500 from 313,250.
Currency and Commodities
The dollar fell against the yen and the euro. It lately was worth 105.11 yen, down from 105.89. The euro was worth $0.8712, up from $0.8696. For more on currencies, see
Crude oil for October delivery at the
New York Mercantile Exchange
rose to $35.30 from $34.90.
Bridge Commodity Research Bureau Index
rose to 230.20 from 229.65.
Gold for December delivery at the
fell to $277.70 an ounce from $277.90.