US CREDIT REVIEW: BONDS UP 5/32 AFTER RETRACING EARLY LOSSES
Long-term
Treasury prices managed to close slightly higher Monday after the bond market
spent most of the session erasing the losses posted overseas and in early U.S.
trading. In spite of the comeback, traders were generally somewhat bearish.
* * * In spite of the comeback, traders were generally somewhat bearish. On
Friday, Treasury prices hit their highest levels since April, only to sell off
from those levels, and traders said Friday's price action suggested the market
had rejected the new highs and will head back down to trade in the middle of its
recent range. The Treasury market is in the summer doldrums, with the only big
event coming up the Federal Reserve's policy meeting on Aug. 22. But analysts
say that because the bond market has already taken out of prices any fear of a
rate hike,
and there's no chance the Fed will decide to cut rates, the Fed's announcement
isn't likely to have a big impact on prices. James Kochan, a bond market
strategist at R.W. Baird & Co., said the bond market had rallied too far and
predicted prices would have a hard time getting above Friday's highs "in the
absence of data (suggesting) that the Fed might have to ease." "I think it will
be difficult to sustain even these levels unless we get soft data," Kochan said,
but argued it's more likely the data will be stronger than expected becaus e
"there hasn't been a significant change in the fundamentals that created strong
growth. The Fed has raised the funds rate 175
basis points since then. But Kochan noted that Treasury yields are "a whole lot
lower" now than when the Fed started tightening, while corporate bond yields are
"not much higher" and mortgage rates only 25 to 30 basis points higher. "If
we're at 8% for 30-year fixed (rate mortgages) now, we were at 7 3/4% back
then," he said. "And those mortgage rates were sufficient to produce very strong
housing, and we're back there now." "I think the slowdown is living on borrowed
time," Kochan said and predicted that by the end of the year, the slower growth
will be seen like "just another Q2 slowdown similar to those in prior years,"
which turned out to be only temporary. Treasuries gave up ground in overseas
trading and hit its lows for the day early in the U.S. session, only to creep
back to Friday's closing levels by mid-afternoon. Some analysts blamed part of
the market's early U.S. weakness on the bigger-than-expected 0.9% rise in June
business inventories. They said that not only did the inventories gain suggest
an upward revision to second-quarter GDP, but because the inventory-sales ratio
came in unchanged, it suggested inventories growth might remain strong in the
third quarter. But Jim Glassman, an economist at Chase Securities, argued that
the sheer pace of growth in inventories argued for slower inventories growth
going forward. "It's not sustainable to have inventories building at an annual
rate of $70 to $80 billion," he said. "The fact that you're growing at a much
faster than normal past means at some point you'll downshift." Glassman said the
bond market's early weakness just reflected a continuation of Friday's trade. A
note trader said Treasuries bounced Monday afternoon because there were "no
sellers at the lower levels." But prices are still well off Friday's highs, he
said, noting that "there was no buying at higher prices Friday." While the Fed
is out of the picture, it remains to be seen if there's demand for the market at
current levels, he said, adding that corporate supply could also be a factor
this week. "Now we'll see if these lower prices can bring in any demand," he
said. A bond salesman was upbeat, noting that prices had bounced on surprisingly
good volume by recent standards, with the GovPX pricing service showing that
$30.1 billion of Treasuries had traded as of 1604 ET. "We did some real
technical damage on the charts and then basically proceeded to reverse the
technical damage," the salesman said. "I'm not sure what propelled the bond, but
that single-handedly pulled the rest of the market higher." He predicted the
market will remain on the defensive until it sees Wednesday's report on July
consumer prices, but said the bond market could resume rallying after that. The
salesman noted that the Treasury will do buybacks this Thursday and next
Thursday and that bond indices will extend significantly at the end of the
month, given the refunding, which should trigger buying late in the month by
managers of indexed funds. The cash 30-year was up 5/32, bid at 107
25/32, where it yielded 5.695%, and the 10-year note was up 2/32 at 99 22/32 and
yielded 5.775%. Treasury bill rates were mixed. Treasuries ignored a further
run-up in crude prices Monday, bouncing over the course of the afternoon even as
Sep crude climbed to a high $32.00 per barrel. Sep crude finished up 90 cents at
$31.92 amid continued market anxiety about a lack of supply. Separately,
Treasury sold $39 billion of short-term debt, including $21 billion 37-day cash
management bills and $18 billion in its weekly three- and six-month bill
auction. The 37-day bills were sold at 6.35%, while the three- and six-month
issues were sold at 6.090% and 6.075%, respectively. The following
were key coupon prices and bill rates in the cash market, compared with levels
at Friday's close:
Fed funds: 6 9/16% 3-mo: 6.09 dn 0.02 6 1/4% 2-yr: 100-00 unch 6-mo: 6.07 up
0.01 6 3/4% 5-yr: 102 24/32 unch 1-yr: 5.89 dn 0.03 5 3/4% 10-yr: 99 22/32 up
2/32
ADD1: US EQUITIES REVIEW: BROADLY HIGHER; FINCLS, TECHS LEAD RALLY
After an indecisive start, U.S.
stocks ended higher Monday as optimism over the interest rate outlook fueled
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UK STOCKS REVIEW: UP AS TECH, TELECOMS, INSURANCE ISSUES FIRM
U.K. blue chip equities had a
steady but unspectacular start to the week, as a strong performance by
insurance, retail and most telecoms stocks left the benchmark index with modest
gains at the end of the day. The FTSE-100 index closed up 35.4 points, or 0.5%,
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GERMAN STOCKS PM: DAX AT INTRADAY LOWS, FOLLOWING NASDAQ DOWN
German's DAX moved sideways near intraday lows
toward the end of trade on bearish impetus from U.S. stock markets, which saw
the Nasdaq Composite and the Dow showing signs of weakness. In overall thin
turnover, Deutsche Telekom AG was near the top of daily percentage gainers as
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WHOLESALE INVENTORIES ROSE 0.9 PERCENT
The Commerce Department said Monday that wholesale
inventories rose 0.9 percent in June after rising a revised 0.9 percent in May,
which was originally reported as rising 0.8 percent. Most economists on Wall
Street were expecting inventories to rise 0.5 percent during the month.
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US EQUITIES MIDDAY: WAVERING, SEEKING DIRECTION IN NEWS VACUUM
Chip stocks higher; financial shrs slip
By Rebecca Byrne, U.S. stocks hovered around
unchanged levels in midday trade, with little economic or earnings news to
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US DEBT FUTURES ALERT: SEP BONDS STEADY BUT RANGE-BOUND
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