Treasuries Surrender Friday's Gains
Treasury yields are headed back toward their highs as traders get out of the way of several key economic releases and a speech by
Fed
Chairman
Alan Greenspan
slated for later this week. Romping stock prices may also be serving as an excuse to sell bonds.
The benchmark 30-year Treasury bond was lately down 19/32 at 94, lifting its yield 4.8 basis points to 6.588%. On Wednesday, the long bond closed at yield of 6.621%, a two-year high.
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"There's no reason for bond market investors to participate much," said Larry Berman, fixed-income strategist at
CIBC World Markets
in Toronto. "We've got CPI, PPI, retail sales and Greenspan all coming up at the end of the week, so there's no reason to make big bets."
The
Producer Price Index
and
retail sales
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reports come out Thursday morning, Greenspan addresses the
New York Economic Club
Thursday night, and the
Consumer Price Index
comes out Friday morning. All three economic reports are for December. No major economic reports are due out in the meantime, and none at all are slated for today.
Typically for a dataless session, volume is light. By 10 a.m. EST, just $9 billion had changed hands, 7.3% below the average for Mondays over the last month, according to tracker
GovPX
.
Prices are down because investors are pessimistic about how high interest rates may have to rise before the pace of economic growth comes down into line with the Fed's target for it. The Fed forecast
GDP
growth in the 3.5% to 3.75% range in 1999. As of the third quarter, the latest for which GDP has been calculated, it was up 4.3% year-on-year.
"The market's in pretty bad shape fundamentally," said Mark Mahoney, Treasury market strategist at
Warburg Dillon Read
in Stamford, Conn. Against a backdrop of economists revising their forecasts to call for the Fed to hike the
fed funds rate
by as much as 100 basis points this year, and of strong economic data like
Friday's December
employment report
, Mahoney said that "rallies like we had
Friday are going to have to considered counter-trend. The market's going to stay soft, so if anyone needs an excuse to sell, like the stock market flying off, they're going to take it."
Rising stock prices are perceived as a threat to the bond market because of the stock market's role in driving economic growth by creating wealth and boosting consumer confidence.
Berman, noting that bond investors didn't take that opportunity on Friday, said today's action was less about the stock market than about the bond market's failure to build on Friday's gains.
