By Deborah Levine
Treasury prices fell Monday, pushing yields up, as the
government began a slew of debt auctions this week, ranging from
short-term bills to $8 billion in 20-year inflation-indexed
securities.
The two-year note (UST2YR) yielded 0.85%, up 2 basis points, or
0.02%.
Ten-year note yields (UST10Y) rose 5 basis points to 2.67%. Bond
prices move inversely to their yields.
"We see bond markets under pressure as actual and planned
issuances surge," especially as foreign official buyers having less
ability to invest in U.S. debt, said analysts at UBS
Securities.
The government sold the Treasury Inflation Protected Securities,
known as TIPS, to yield 2.500%.
TIPS pay investors a coupon plus the actual rate of inflation as
measured by the government's consumer price index.
The most recently issued 20-year TIPS, maturing in April 2028,
carry a yield 1.26 percentage points below regular Treasurys
maturing around the same time, according to Barclays Capital. That
gap implies that investors expect inflation to average around 1.26%
over the life of the debt, which Barclays considers too low, making
the securities a good buy at these levels.
The TIPS received bids for $1.92 for every dollar available,
close to the average in the last four sales of the securities.
Indirect bidders, a class of investors that includes foreign
central banks, bought 54% of the sale, also near the average of the
last four.
Earlier, the Treasury sold $29 billion in three-month bills at a
rate of 0.152% and $28 billion in six-month bills at a rate of
0.350%.
The Treasury Department also will put record amounts of two- and
five-year notes up for bid, reducing investors' willingness to buy
higher amounts at yields already near the lowest ever.
Home sales, job losses
Treasurys stayed lower after the National Association of
Realtors said sales of existing homes rose 6.5% in December to a
seasonally adjusted annualized rate of 4.74 million. Economists
surveyed by MarketWatch predicted the pace would fall to 4.36
million.
The Conference Board's index of leading indicators rose 0.3%
last month, helped by an increase in the supply of money. It fell
0.4% in November.
Treasurys briefly gained support as companies in several
industries announced plans to slash jobs.
The dearth of job cuts may work against the bond market though,
if it leads the government to increase its already mammoth stimulus
proposal.
Construction-equipment maker Caterpillar (CAT) said it would cut
20,000 jobs, and Home Depot (HD) said it would cut its workforce by
about 7,000 jobs.
Sprint Nextel (US-S) it will eliminate 8,000 jobs in the first
three months of 2009.
Longer-term "bonds are off on the continuing realization of
stimulus funded by supply" of more debt, said Andrew Brenner,
co-head of structured products and emerging markets at MF
Global.
Also of concern to bondholders, Timothy Geithner is expected to
be confirmed as Treasury Secretary on Monday, opening up the
possibility of more details on the Obama Administration's stimulus
proposal.
Possibly a threat to bond investors "will be the formal approval
of Geithner and his coming forth with more details on the stimulus
package, for example homeowners relief, which could add to deficit
concerns and, imagine, boost equity market confidence," said David
Ader, U.S. government bond strategist at RBS Greenwich Capital.
Also on tap this week is the Federal Reserve's policy meeting.
Analysts don't expect any changes to the central banks' target
overnight interest rate between banks, already dropped to a range
of zero to 0.25% last month.
Policy makers are unlikely to say much different after they meet
on Tuesday and Wednesday, having already affirmed they are ready to
pull out all the stops to help the economy and stabilize financial
markets.
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