MW: Treasurys little changed after Philly index plunges
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasurys were little changed Thursday, recouping earlier losses, as a gauge of manufacturing in the Philadelphia region dropped the most ever, boosting concerns about a severe U.S. recession.
Ten-year note yields fell 1 basis point, or 0.01%, to 3.95%. Yields move inversely to prices.
"I'm still bullish on Treasurys because the economy is going to be weak for some time, and nobody knows how weak it might get," said David Coard, manager of fixed-income sales and trading at Williams Capital Group.
Conditions in the manufacturing sector in the Philadelphia region deteriorated significantly in October,
The Federal Reserve Bank of Philadelphia's diffusion index fell to negative 37.5 in October from positive 3.8 in September. Readings below zero indicate contraction. The decline was much larger than much larger than the drop to negative 11.0 predicted by economists.
A report showing industrial production fell more than expected also supported Treasurys.
Bonds started the day lower as U.S. equities looked likely to rebound from yesterday's drop, when the Dow Jones Industrial Average has its second-worst drop on record. The gains disappeared after the Philly Fed index.
Treasurys remain under pressure as some investors take profits in the recent rally, Coard said.
Two-year note yields were unchanged at 1.56%. The yield had fallen from 1.72% in the last week.
Initial claims for unemployment benefits fell 16,000 to 461,000 in the week ended Oct. 11, the Labor Department said. Continuing claims rose to 3.71 million. See Economic Report.
Separately, the consumer price index was unchanged in September. Excluding food and energy, prices rose 0.1%. Economists surveyed by MarketWatch expected CPI and core prices to increase 0.2%. See full story.
Futures traders still expect a slowing economy to prompt the Federal Reserve to lower its target borrowing rate at the end of the month.
"Overall inflation is rolling over with the collapse in commodity prices," said T.J. Marta, fixed-income strategist at RBC Capital Markets. "The job market continues to deteriorate. In tandem, this provides an economic, not merely financial crisis, reason for continued Fed easing."
Trading in the November fed funds futures contract indicate a 78% chance that rates will be lowered to 1% from 1.50% at the end of the month.
