MW: Treasurys swing with equities as home prices rise
Mammoth California deal stealing the spotlight
Treasurys prices slid Wednesday, giving up earlier gains, after stocks turned higher on a surprise gain in home prices.
Earlier, Treasurys had gained as investors, acting on diminished hopes of a recovery in the banking sector, sought the safety of government debt.
Bond traders were also closely watching for the success of California's mammoth taxable bond offering competing with Treasurys, corporate and mortgage securities.
"The California deal pricing along with better home prices are leading to lower Treasury bond prices," said Andrew Brenner, a trader with MF Global.
Yields on 10-year notes , which move in the opposite direction as prices, increased 3 basis points to 2.93%. A basis point is 0.01 percentage point.
Two-year-note yields rose 1 basis point to 0.95%.
Standard & Poor's 500 Index rose 0.5%, after earlier sliding 0.8%.
Weighing on stock sentiment earlier, Morgan Stanley ) swung to a wider first-quarter loss than Wall Street expected and slashed its dividend. See more on Morgan Stanley.
Plus, the International Monetary Fund said Wednesday there will not be a quick exit from the global recession. Global economic activity is now projected to decline 1.3% in 2009, by far the deepest recession since World War II, it said. See more on IMF forecast.
Treasurys fell on Tuesday, sending 10-year yields up by the most in more than a week, as investors found them less appealing with stocks on the march upward. Yields turned lower in overnight trading as foreign investors were attracted by the relatively higher yields.
With no more economic data expected Wednesday, traders are looking ahead to releases Thursday and Friday on weekly jobless claims and home sales.
California on deck
Bond investors are also closely watching a taxable-bond sale by California, which is expected to price today and may expand to $5 billion, according to Action Economics. The offering will be by far the biggest to date under the recently created Build America Bonds program.
"This hefty supply could be crowding Treasurys," analysts at Action Economics said.
The program was part of Congress's economic-stimulus package and offers a federal subsidy to local governments and other municipal issuers to make it advantageous to issue in the taxable-bond market to fund infrastructure projects.
The 25- and 30-year portions of the sale are expected to carry yields 3.65 percentage points above 30-year Treasurys, or 7.40%.
California may sell another $3 billion in shorter-term, taxable debt separate from the Build America Bonds program, seeing strong demand from investors.
