Treasuries ended slightly lower amid a continuing flood of investment-grade corporate bond issuance. There were no major economic data, but Fed Chairman Alan Greenspan helped the bond market by passing up an opportunity to talk prices down.
The benchmark 10-year Treasury note traded in a narrow, 10/32 range and ended down 1/32 at 103 8/32, lifting its yield 1.8 basis points to 6.048%. The 30-year Treasury bond was unchanged at 105 2/32, its yield 5.886%.
Chicago Board of Trade
, the September
Treasury futures contract was unchanged at 97 18/32.
Early in the session, the focus was squarely on Greenspan, whose
speech to the National Governors Association was seen as a perfect opportunity to dispel the increasingly popular notion that the
Federal Open Market Committee is unlikely to hike interest rates at its next meeting on Aug. 22. As measured by the prices of
fed funds futures contracts listed on the CBOT, the odds are somewhat better than even that the FOMC will leave the fed funds rate unchanged at 6.5% next month.
If Greenspan disgrees, he didn't say so, not even obliquely. So there was some relief in the Treasury market and prices rose.
In addition to not warning of an August rate hike, Greenspan made some comments that were modestly bullish in tone. Specifically, in a discussion of productivity (a.k.a. output per hour), he said:
There are no indications in the marketplace that the process of re-engineering business operations is slowing, although it has been difficult analytically to disentangle the part of the rise in output per hour that is permanent and that which is the consequence of transitory business cycle forces. The part based on information advances, of course, is irreversible. Having learned to employ bar code and satellite technologies, for example, we are not about to lose our capability in applying them. But until we experience an economic slowdown, we will not know for sure how much of the extraordinary rise in output per hour in the past five years is attributable to the irreversible way value is created and how much reflects endeavors on the part of our business community to stretch existing capital and labor resources in ways that are not sustainable over the longer run.
The question of whether better productivity is sustainable is key to monetary policy because productivity enables the economy to grow at a faster pace without generating inflation. The acknowledgement that some portion of the recent improvements in productivity is permanent, while not new, is favorable from a bond-market perspective, since bonds lose value when inflation heats up.
The market reaction to the speech was muted because Treasury prices are near the top of their recent range, said Michael Pianin, a trader at
. "If we'd been a point lower we probably would've gone up a very good degree," he said. "So much is priced into Treasury yields right now. Everything is priced to a soft landing. Whether that plays out is another story."
Later in the session, Treasuries were pulled off their highs by selling related to the planned pricing of some $12 billion to $14 billion of new investment-grade corporate bonds this week. For comparison, investment-grade corporate issuance has averaged $7 billion a week so far this year.
Heavy issuance of corporate bonds often triggers selling of Treasuries either by underwriters as a hedge against falling prices, or by investors who need to raise cash to buy the new issues.
The growing belief that the Fed is finished hiking interest rates has created strong demand for corporate bonds,
market analyst John Atkins said. Most deals are being sized and priced at the high end of their announced ranges, and are performing well in the secondary market, Atkins said. "You're not hearing gnashing of teeth in the face of a big calendar," he said.
In economic news, the weekly retail sales reports found July off to a slightly stronger-than-expected start. The
BTM Weekly U.S. Retail Chain Store Sales Index
chart ) rose 0.3%, its biggest gain in seven weeks. And the
Redbook Retail Average
chart ) found July sales running 1.4% ahead of June after one week.
Currency and Commodities
The dollar rose against the yen and the euro. It lately was worth 107.10 yen, up from 107.04. The euro was worth $0.9525, down from $0.9551. For more on currencies, see
Crude oil for August delivery at the
New York Mercantile Exchange
rose to $29.70 a barrel from $29.69.
Bridge Commodity Research Bureau Index
rose to 220.05 from 219.30.
Gold for August delivery at the
fell to $283.30 an ounce from $284.90.