December 27, 2004
YAHOO Finance
NEW YORK (Reuters) - U.S. Treasuries prices tumbled on Monday as several rounds of selling had an exaggerated impact in a seasonally illiquid market.
Another record low for the dollar against the euro pressured Treasuries. The dollar's slide has tempted investors to short Treasuries and use the money to buy euro debt, counting on wider spreads and a forex gain.
With German bunds steady while Treasury prices fell, the spread between 10-year yields widened out to 67 basis points -- highs not seen since late 2000.
The burst of selling caught traders unprepared, with the London market still closed for the holidays, and the benchmark 10-year Treasury note (US10YT=RR) skidded 21/32 in price. Its yield ticked up to 4.30 percent from 4.22 percent late Thursday, breaking the ceiling of last week's tight 4.17 percent to 4.25 percent trading range.
"The early call is for a sideways range for the week as traders attempt to stay out of harm's way," said Kevin Logan, an analyst at IFR Markets. "But the lightly defended and sparsely populated market is vulnerable to large price movements when unexpected flows blindside traders."
He noted many domestic investors still harbored bearish sentiments on bonds, as evident in surveys of money managers and the short duration of many portfolios.
The same investors have been bearish all year, and yet benchmark yields are ending 2004 much where they began -- and that despite 125 basis points of tightening by the Federal Reserve.
There are no economic data due on Monday, and only a handful of notable releases in the remainder of the week, including consumer confidence on Tuesday and the Chicago purchasing management survey on Thursday.
The quiet will be punctuated by an auction of $24 billion in new two-year paper on Wednesday. Traders may be inclined to cheapen prices into the sale just in case investor interest is lacking and they end up underwriting much of the issue.
The current two-year note (US2YT=RR) was off 3/32 in price, lifting yields to 3.06 percent from 3.01 percent late Thursday before the U.S. holiday.
Five-year notes (US5YT=RR) fell 10/32, taking yields to 3.65 percent from 3.58 percent, up from 3.56 percent. The 30-year bond (US30YT=RR) dropped 1-8/32, lifting its yield to 4.92 percent from 4.84 percent.
The spread between two and 10-year notes rose to 124 basis points, having repeatedly shied away from major chart resistance at 110 basis points in the last couple of weeks.
Traders noted reports on the holiday shopping season were mixed, but overall not as soft as seemed possible early in the month. Wal-Mart (NYSE:WMT - News) still expects sales to rise by a modest 1 percent to 3 percent year-on-year but also reported strong sales of gift cards which could help boost numbers in January.
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