New data show foreign investors supported October's slide in yields
SAN FRANCISCO (MarketWatch) - Treasury prices rallied Monday, sending yields lower, as investors bought up long-dated securities ahead of expectations the Federal Reserve could soon buy Treasurys, with another round of dismal economic news also supporting bids.
The benchmark 10-year Treasury notes rose 0.1%, sending yields (UST10Y:
2.51, 0.00, -0.1%) down 5 basis points to 2.53%. The 30-year bond rallied 0.9%, sending yields 6 basis points lower to 2.99%.
"The Fed has almost preannounced it will turn its attention to the long end of the market," said Kevin Giddis, head of fixed income sales, trading and research at Morgan Keegan. "There's a little front buying on the idea that Fed will focus on the long end," he said.
On Tuesday, at the close of its monetary policy meeting, the Fed is expected to cut interest rates by 50 basis points, or a half-percentage point, to 0.5%. It is also likely to signal the next measures it will take to rejuvenate stalled lending markets.
Chairman Ben Bernanke has said the U.S. central bank may buy Treasury notes and bonds, a first since the early 1950s, to drive down rates. See full story on the Fed's next moves. The thinking is, "If you buy today, you may be along for a good ride," Giddis said.
Shorter-term maturities also rallied, weighing on yields. The two-year Treasury yield , which often tracks with forecasts for the fed funds rate, fell 4 basis points to 0.73%. Yields on one-month Treasurys lost 2 basis points to 0.0076%, staying close to 0%.
One basis point is 1/100th of a percentage point.
Treasurys on Monday also benefited from investors' appetite for safe-haven assets after reports emerged of widespread investment losses from the alleged Ponzi scheme run by Bernard Madoff. Spain's Banco Santander said its customers had an exposure of around $3.1 billion, while Japan's Nomura has an exposure of around $302 million. Read more on Madoff.
Nervousness about a deepening global recession and more shocks to the U.S. financial system drove investor inflows to U.S. Treasurys in October, a new report showed. The U.S. Treasury said net foreign purchases of U.S. securities reached a record high of $286.3 billion that month as foreign investors bought Treasurys - particularly T-bills - and sold debt issued by Fannie Mae, Freddie Mac and other government agencies. Read full story on foreign inflows.
Bad news supports bonds
In economic news, a survey of manufacturing showed activity falling at a record pace in the New York region. Read more on Empire State survey.
Separately, the Federal Reserve said U.S. industrial output fell 0.6% in November on broad-based weakness across manufacturing industries.
"The report suggests that conditions in the industrial sector remain dire, in line with weak personal consumption and shrinking business investment," said Anna Piretti, an economist at BNP Paribas. Read more on industrial production.
And the National Association of Home Builders stayed at a record low in December, showing that fewer than 1 in 10 builders believes the market is good. Read report on homebuilders' index.
"The index hit a record low in November, suggesting that, other than the sales agents, the only signs of life in model homes were the potted plants," said Sal Guatieri, economist at BMO Capital Markets, in a note made public before the release.
Stocks fell, with financials weighing on the broader market. The Dow Jones Industrial Average lost 112 points, or 1.4%, to about 8,519 points.
