After a day of very quiet trading activity,
Treasuries were lower, especially at the long end, which lost more than half a point. The shorter-term notes were marginally off. With no release of economic data today, dealers are awaiting decisions to come from the Jan. 30-31 meeting of the
Federal Open Market Committee , the policy-making arm of the
Federal Reserve .
Yields were up slightly on the 10-year and the 30-year Treasury and close to flat on the notes after having dipped earlier in the morning.
The benchmark 10-year
Treasury note fell 12/32 to 103 10/32, raising its yield 4.9 basis points to 5.315%.
Treasury bond fell 24/32 to 107 29/32, raising its yield 4.9 basis points to 5.692%.
Much of what has been happening in the money market over the last two trading days has hinged on recent remarks by Fed chairman
Alan Greenspan .
Greenspan indicated in his comments to the
Senate Budget Committee
last week that economic growth is at a standstill. Although he devoted most of his talk to the macroeconomic benefits of a tax cut and dropped no hint about monetary corrective measures, Greenspan did not appear to contradict market expectations of a half percentage point cut in interest rates at the end of this month. He was much more explicit about inflation, deeming it well under control.
The potential rise of inflation has been the major reason for the Fed to back away from lowering interest rates in the past.
Market watchers were somewhat taken aback by Greenspan's endorsing, in principle if not necessarily in degree or timing, the proposed tax breaks of the Bush administration. But they took his comments on the economy and inflation to mean that a 50 basis-point cut in the
fed funds rate is inevitable. The fed funds futures rate, which tracks such sentiment, presently pegs the chances of this happening at almost 95%.
, the volume of trading today was a little more than half of what it has been over the past five days. This was in no small part due to the absence of corporate and agency debt issuance, which had been flooding the money market over the last three weeks and causing bond strategists to substantially shift portfolio positions to accommodate the higher yielding corporate securities. In fact, January saw a new record for the amount of corporate issues entering the market in a single month.
Thomson Financial Securities Data
notes that the $83.05 billion of such debt issued this month eclipsed the previous record of $57.3 billion set last March.
The arrival of high-yielding investment-grade debt in the trading pit hits the longer-maturing bonds hardest, especially in an environment of falling rates. Traders offload the longer-dated security to minimize their exposure to the possible inflation that may accompany the increased liquidity resulting from easier lending.
Besides the developments at the central bank's meeting, economic news to watch for during the week is the previous quarter's
gross domestic product
), and manufacturing and employment data. The Fed committee will likely have a heads-up on some of these reports, although the forecast growth of just 2% for the latest GDP number surprises nobody.
Economic morale was further punctured as two major corporations announced layoffs.
will cut 26,000 positions at its Chrysler unit over the next three years, while
will eliminate 4,000. And the outplacement firm of
Challenger, Gray and Christmas
reports that the dot-com sector laid off 23% more workers in January than it did the previous month. All the more reason for money managers to remain convinced that Greenspan will come to the rescue.
Chicago Board of Trade
, the March
Treasury futures contract fell 11/32 to 102 14/32.
Currency and Commodities
The dollar fell against the yen and rose against the euro. It lately was worth 116.64 yen, down from 117.32. The euro was worth $0.9170, down from $0.9238. For more on currencies, see
Crude oil for February delivery at the
New York Mercantile Exchange
fell to $29.06 a barrel from $29.77.
Bridge Commodity Research Bureau Index
fell to 225.46 from 229.14.
Gold for March delivery at the
slipped to $262.80 an ounce from $262.90.