Yields Sink Thanks to a Buyback, the Euro and Stocks
Treasury prices rose today, thanks initially to the Treasury Department's latest buyback and to a rally in the euro. The euro rally pushed European bond prices higher, and Treasuries rode their coattails. Later in the session, the gains swelled as the Dow Jones Industrial Average collapsed. But low volume exaggerated the move, market watchers said.
Fed Chairman
Alan Greenspan gave a
speech, but didn't comment on the economy or monetary policy.
And there was loads of economic data but none of it was particularly surprising or influential. In the absence of enlightening economic data, and with low volume, the market "felt a larger impact" from the Treasury buyback than would otherwise have been the case, said Christopher Fitzmaurice, co-head of government bond trading at
Salomon Smith Barney
.
The benchmark 10-year Treasury note rose 20/32 to 100 25/32, dropping its yield 8.5 basis points to 6.389%, the lowest since May 2. Shorter-maturity yields fell by comparable amounts. The 30-year Treasury bond gained 1 5/32 to 101 27/32, lowering its yield 8.4 basis points to 6.114%. And at the
Chicago Board of Trade
, the June
Treasury futures contract added 1 4/32 to 94 26/32.
In today's buyback, conducted at 11 a.m. EDT, the Treasury Department bought $2 billion of 30-year bonds issued between 1989 and 1993 from dealers.
The results were positive in two respects,
Merrill Lynch
government bond strategist Jerry Lucas said. First, the $8.114 billion of securities the dealers offered the Treasury Department represented 4.3% of the securities targeted by the operation, a modest percentage. Had the percentage been larger, there might have been selling after the buyback to unload securities the department didn't purchase. After
last week's buyback, when 6.5% of the securities targeted were offered, the market as a whole fell.
Also, the weighted average yield the department paid for the securities it bought -- 6.574% -- was slightly lower than where the market was at the offer deadline, "indicating that the Treasury was an aggressive purchaser," Lucas noted. That also contrasted with past buybacks. "The Street probably made a little money on this
reverse auction," Lucas said. "It's been tough making money on the auctions."
The buyback program, which started in March, uses federal government surplus funds to pay down debt by buying and retiring old Treasury securities.
The Treasury market also benefited from a run-up in European government bond prices as the euro gained ground, market analysts said. The yield on the 10-year German government bond fell to 5.243% from 5.291%. England's 10-year yield fell to 5.300% from 5.391%, and the French 10-year issue rallied to 5.384% from 5.468%.
Treasuries "have been on the cheap side vs. foreign spreads,"
Fuji Securities
president Bernard Jensen said, meaning that U.S. yields have exceeded foreign yields by larger-than-normal amounts lately. "So when they took off we followed suit."
Economic Indicators
The government's preliminary estimate of how fast
grew during the first quarter was unchanged from its advance estimate of 5.4%. Likewise, its measure of the first-quarter inflation rate, the GDP implicit price deflator, was unchanged at 2.7%.
The revisions to GDP incorporated a slower pace of consumer spending (7.5% vs. 8.3%) and homebuilding (5.2% vs. 6.7%), but those were offset by an upward revision to business investment (25.2% vs. 21.2%) and a downward revision to the trade deficit.
In other news,
existing home sales
fell 6.2% to an annual pace of 4.88 million in April, from a revised 5.20 million in March. But they remain at a very high level by historical standards, in spite of steadily rising mortgage rates over the last year and a half.
The
Help-Wanted Index
rose to 88 in April from 87 in March.
And the weekly tally of
initial jobless claims
rose slightly to 284,000 from a revised 278,000.
Currency and Commodities
The dollar fell against the yen and the euro. It lately was worth 107.43 yen, down from 107.82. The euro was worth $0.9120, up from $0.9030. For more on currencies, please take a look at
TSC's
Currencies column.
Crude oil for July delivery at the
New York Mercantile Exchange
rose to $30.51 a barrel from $29.93.
The
Bridge Commodity Research Bureau Index
fell to 224.54 from 225.47.
Gold for June delivery at the
Comex
fell to $270.70 an ounce, an eight-month low, from $273.80.
