Treasuries Weather Corporate Bond Onslaught
Treasuries traded in a narrow range today and finished little changed despite the pricing of several very large corporate bonds and the monthly auction of two-year Treasury notes.
A large infusion of fresh supply can weigh on bond prices, so today's performance attested to the high level of optimism on the part of investors that economic growth is slowing, and that as a result, the
Fed will not hike interest rates again.
Meanwhile, a heavy sense of anticipation hung over the market. Thursday and Friday bring key economic releases that could either gratify or dash those hopes. Thursday brings the second-quarter
Employment Cost Index
(
definition |
chart |
) and June
durable goods orders
(
definition |
chart |
) report; Friday, the second-quarter advance
GDP
(
definition |
chart |
) report.
The benchmark 10-year Treasury note gained 2/32 to 103 13/32, dropping its yield a fraction of a basis point to 6.025%. Shorter-maturity issues were likewise little changed and the 30-year Treasury bond gained 2/32 to 106 7/32, shaving its yield to 5.807%.
At the
Chicago Board of Trade
, the September
Treasury futures contract lost 3/32 to 98 14/32.
There was no market-moving economic news today, so traders' focus was on the $11 billion of investment-grade corporate issues that were priced today, bringing the total for the week to nearly $16 billion, according to
IDEAglobal.com
. That compares to a year-to-date average of $7.4 billion a week. Corporate bond issuers have been rushing deals to market ahead of the ECI and GDP reports.
Much of the action in Treasuries today was related to various corporate-bond pricings,
IFR
managing analyst Ken Logan said. "There was some very chunky deal-related buying," Logan said. Treasuries benefited from "a fair amount of swap support and hedge-unwind support," he added, referring to strategies involved in the pricing of new corporate issues.
At the same time, the
Treasury Department
auctioned $10 billion of new two-year notes today, awarding them at a yield of 6.284%. The bid-to-cover ratio, which measures demand for the issue, was 2.63, slightly better than the recent average.
The Treasury market's stability amid the supply onslaught is a testament to the optimism that has reigned since Fed Chairman
Alan Greenspan's surprisingly dovish
Humphrey-Hawkins testimony last week,
Barclays Capital
Treasury market strategist Gemma Wright said.
"The market absorbed almost $9 billion of corporate supply and $10 billion of two-year Treasuries and barely moved," Wright said midway through the day. "That tells me there is a lot of cash on the sidelines looking for a home ahead of month-end and the key data." In addition, she said, people are "bullish about interest rates moving lower in near future, and are decreasing expectations of a Fed move in late August."
Greenspan "definitely took the wind out of any bear sails," Logan added. If Thursday's and Friday's reports confirm his thesis that economic growth is slowing, "it's going to be difficult to be on the short side" of the Treasury market.
In other news, the Treasury Department announced the details of tomorrow's buyback operation, which will target $1 billion of 30-year bonds maturing between February 2019 and 2021. Buybacks are coordinated purchase of Treasury securities by the Treasury Department from primary dealers for the purpose of taking them out of circulation. Federal government surpluses have made it possible for the government to pay down debt, which takes the form of Treasury securities outstanding.
Economic Indicators
The weekly
Mortgage Applications Survey
(
definition |
chart |
source
) detected declines in both refinancing and new mortgage activity. The Refinancing Index dropped to 359.6 from 371.9, while the Purchase Index fell to 313.1 from 331.2.
Currency and Commodities
The dollar rose against the yen and fell against the euro. It lately was worth 109.20 yen, up from 109.09. The euro was worth $0.9426, up from $0.9382. For more on currencies, see
TSC's
Currencies column.
Crude oil for September delivery at the
New York Mercantile Exchange
fell to $27.81 a barrel from $27.95.
The
Bridge Commodity Research Bureau Index
rose to 218.41 from 218.20.
Gold for August delivery at the
Comex
rose to $279.70 an ounce from $279.30.
