Treasuries whooshed lower on summer-Friday-light volume, as concerns about rising energy prices, new corporate bonds and possibly the Fed pushed prices through key technical support levels.
The benchmark 10-year Treasury note ended down 18/32 at 102 8/32, lifting its yield 7.8 basis points to 6.185%. Shorter-maturity yields rose by similar amounts. The 30-year bond fell 1 2/32 to 102 28/32, hoisting its yield 7.8 basis points to 6.041%. And at the
Chicago Board of Trade
, the September
Treasury futures contract dropped 20/32 to 95 28/32.
With no economic data to spur action, volume was exceedingly light. Just $16.4 billion of Treasuries changed hands by 3 p.m. EDT, 19% less than average for a Friday over the last month.
The market was initially pressured lower by still-high oil prices, hovering near nine-year highs after this week's
meeting, which produced an agreement to increase output only nominally.
Also, a large agency bond was priced and a mega-corporate bond issue waits in the wings, triggering some selling of Treasuries, either by underwriters as a hedge, or by investors in order to finance purchases of the new issues. The
Tennessee Valley Authority
sold $1 billion of 30-year bonds at a yield of 7.247% this morning and
is readying for next week a multibillion-dollar deal whose final size hasn't been determined.
The German telephone giant was originally talking about an $8 billion issue, comprising $5 billion of dollar-denominated bonds, the equivalent of $1.5 billion of euro-denominated bonds, the equivalent of $750 million in yen and the equivalent of $750 million in sterling. Now, rumor has it the dollar-denominated portion could swell to $8 billion, boosted the total to the equivalent of $11 billion. It is expected to be priced on Thursday, after the Fed's Wednesday decision on interest rates.
But the reason Treasuries dropped as much as they did today was primarily technical, said John Canavan, Treasury market analyst at
Stone & McCarthy Research
in Princeton. Some "fairly significant support levels" representing the lows since the June 2 release of the May
employment report were tested in early trading, and with "no one there to take the other side," they gave way, triggering stop-loss orders. The most important support levels were the 6% yield level on the 30-year bond and the 96 8/32 price level on the bond futures contract, Canavan said.
Todd Finkelstein, director of fixed-income at
, believes there was also a strong fundamental component to today's trade. The market "has rallied pretty far, pretty fast over the last couple of weeks," he said. "One could argue it was well overbought and due for a breather."
But Finkelstein also believes that today's selloff indicates some reconsideration of the majority viewpoint that the Fed is unlikely to hike the
fed funds rate again at next week's meeting. He disagrees with that view. "The foundation is still in place for a gradual rise in inflation," he said. "A weakening to 4%, even to 3%
GDP growth for a single quarter is insufficient to weaken the foundation for a pickup in inflation."
Meanwhile, the latest rise in oil prices "hasn't really fed its way through the price pipeline." Finkelstein added. "Eventually it will."
Currency and Commodities
The dollar rose against the yen and fell against the euro. It lately was worth 104.72 yen, up from 104.57. The euro was worth $0.9362, up from $0.9357. For more on currencies, please take a look at
Crude oil for August delivery at the
New York Mercantile Exchange
rose to $32.23 a barrel from $32.19.
Bridge Commodity Research Bureau Index
fell to 224.51 from 227.08.
Gold for August delivery at the
fell to $284.90 from $287.20.