Treasury note and bond prices ended sharply higher as investors bought heavily into money instruments. The decision of the Federal Reserve yesterday to watch the economy closely but leave interest rates unchanged remained uppermost in investors' minds as they fled the sagging equity markets, seeking solace in Treasuries. Bond yields decreased, recharting their lows for the year.
"What we are seeing is a continuation of yesterday, with clear signs of the economy slowing, risk of inflation decreasing and that of a recession increasing. And what has been happening to stocks because of weak corporate earnings is the other major factor," said Joseph Shatz, government bond strategist at
. He felt that the bond market was looking to the Fed to ease interest rates many times next year, and has already accounted for it lowering the rate by least 25 basis points at the Jan. 30-31 meeting.
The benchmark 10-year
Treasury note rose 27/32 to 105 1/32, lowering its yield 14.5 basis points, to 5.047%.
Treasury bond rose 1 5/32 to 112 11/32, lowering its yield 7.1 basis points, to 5.408%.
Jim Kochan, senior bond market strategist at
Robert W. Baird
, felt that Treasuries reacted primarily today to equities. "The equity markets were more convinced of the Fed lowering interest rates and are expressing deep disappointment. With the equities going down, bonds are trading up," he noted.
Both Shatz and Kochan acknowledged the 'flight-to-quality' buying taking place, during which the markets get so weak that participants try to protect their holdings, and their first response is to buy U.S. Treasuries.
Kochan didn¿t think that the
gross domestic product
) numbers to be announced tomorrow morning would have much of an effect on the bond price movement. "GDP numbers are expected to be weak, and the market has already taken note of that. The figures for the
durable goods orders
), to be brought out the day after, may have more of an impact since they are so volatile, and could startle the market."
The bottom line for him today though was the
Nasdaq, which was "flirting with some pretty ugly technicals." The tech-heavy index ended off 179, or 7.1%, to 2333.
Chicago Board of Trade
, the March
Treasury futures contract rose 20/32 to 105 4/32.
Bond prices were rising despite signs of strength in the housing sector of the economy.
) rose more than expected in November to 1.562 million from 1.528 million in October. Economists polled by
had forecast a rate of 1.536 million. Analysts did note that all of the increase was in the multifamily units, and they ascribed it to little more than normal volatility.
In other economic news, the weekly
Mortgage Applications Survey
) detected an increase in refinancing and a decrease in new mortgage activity as mortgage interest rates fell to new lows for the year. The Refinancing Index rose to 777.2, the highest since May 1999. The Purchase Index fell to 302.2.
The increase in refinancing helped bonds as well. Managers of mortgage-backed security portfolios have been snapping up Treasuries, fearing that lower interest rates will accelerate home refinancing and early prepayments of mortgage loans. Such activity would ultimately force them to reinvest in funds at less attractive interest rates.
Currency and Commodities
The dollar rose against the yen and fell against the euro. It lately was worth 112.72 yen, up from 112.40. The euro was worth $0.9094, up from $0.8943. For more on currencies, see
Crude oil for January delivery at the
New York Mercantile Exchange
was unchanged at $29.33 a barrel.
Bridge Commodity Research Bureau Index
fell to 227.57 from 228.27.
Gold for February delivery at the
rose to $275.4 an ounce from $274.7.