Trading volume low because U.K. on holiday, analysts say
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Benchmark 10-year Treasury prices fell on Monday, pushing yields up from record lows, amid reports that Germany eased its opposition to some proposed solutions to ease Europe’s debt crisis.
Yields on 10-year notes 10_YEAR +3.91% , which move inversely to prices, rose 5 basis points to 1.51%, heading back up after briefly retouching their all-time low. A basis point is one one-hundredth of a percentage point.
Yields on 30-year bonds 30_YEAR +1.55% increased 3 basis points to 2.55%, after setting a record low last week.
Five-year yields 5_YEAR +6.90% added 3 basis points to 0.66%.
Analysts noted that trading volume in early U.S. hours was about a third of the average amount, as U.K. trading was thin due to the Queen’s Diamond Jubilee. It improved to about 80% of the recent average by midmorning in U.S. trading, according to CRT Capital Group.
Germany signaled it may be open to issuing euro-zone bonds or further supporting the region’s banking sector, if countries in the euro-zone agree to transfer more fiscal control to a European authority, The Wall Street Journal reported late Sunday.
The resistance of Germany to more aid or programs that rely on its economic strength has been a major roadblock to resolving the region’s sovereign-debt and banking crisis. See more on Germany.
More near-term than the olive branch of fiscal union or potential eurobonds, traders will see what comes out of this week’s European Central Bank meeting, as well as Greece’s election, a Federal Reserve meeting, and a European Union summit coming this month.
“We see no fundamental shift at this point and would not look for a definitive deal to be announced this week,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities. “The Greek elections on June 17 could be a more significant turning point, if the Greek people vote for the euro ahead of the EU Summit on June 28-29.”
U.S. economic outlook
On Friday, focus was on the U.S. economy following a much weaker-than-expected employment report for May, pushing Treasury yields to record lows.
Some analysts said the data could persuade the Fed to extend its current bond-purchase program or opt to buy even more bonds, so it’s hard to point to Monday’s backup in yields in thin volume as indicative of the market’s outlook.
“We don’t have confidence in suggesting that this backup reflects that Friday was a big capitulation day and we’re up for a retracement,” said David Ader and Ian Lyngen, bond strategists at CRT Capital Group.
With Treasury yields in uncharted territory, traders may be hedging more of their positions or reducing exposure to a move up or down in yields, RBS Securities analysts said. Just last week, several investors said they saw 1.50% as the low in 10-year yields, only to see that broken through after the payrolls report.
“Whether a sailor or a pilot, uncharted waters/skies often dictate a slow-go approach among those tasked to ply such waters or fly in such skies,” Bill O’Donnell, head of Treasury strategy at RBS, wrote in a note. “Many experienced pilots and sailors would never venture into the unknown, preferring instead to leave such ventures to others.”
As for carving out some kind of trading range, he noted that 10-year yields face resistance getting below 1.45%, and if they break that level, its 1.36%. Bonds may see technical support if yields rise to 1.67%.
For 30-year bonds, the first resistance level is 2.50%, which support may be seen at 2.78%, he wrote.
Deborah Levine is a MarketWatch reporter, based in New York.
