MW: Treasurys extend worst weekly loss since February
U.S. data on GDP and sentiment don’t rock the boat
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices fell Friday, adding to the week’s loss and pushing 10-year yields up by the most in almost two months, after Federal Reserve official Charles Plosser made comments favoring hiking interest rates and quickly selling off assets.
“Plosser was the catalyst,” said John Canavan, a fixed-income analyst at Stone & McCarthy Research Associates.
Bonds have been under pressure as equity gains show that investors are comfortable moving out of U.S. debt and into assets considered riskier.
Bond yields, which move inversely to prices, have been in a tight range lately as investors remain positioned for bonds to fall further even in light of a deteriorating debt situation in Europe, the nuclear crisis in Japan and ongoing violence in Libya.
Yields on 10-year notes (UST10Y 3.44, 0.00, 0.00%) rose 4 basis points to 3.45%, after slipping to 3.38% earlier. A basis point is 1/100th of a percent.
Yields on the benchmark securities have increased from 3.28% a week ago, the first weekly increase in three and the biggest jump in yields since early February.
Yields on 2-year notes (UST2YR 0.74, 0.00, 0.00%) added 3 basis points to 0.74%. A week ago, they traded at 0.68% after declining for the previous five weeks.
Thirty-year bond yields (UST30Y 4.50, 0.00, 0.00%) turned up by 2 basis points to 4.51%. Last Friday, long bonds traded at 4.44%.
Plosser, president of the Philadelphia Federal Reserve Bank, said the central bank should hike interest rates from their current level near zero to 2.5% within a year, starting in the “not-too-distant future.”
He laid out an aggressive plan in which the Fed would sell $125 billion of assets for each 25 basis-point increase in the funds rate. See more on Plosser’s plan.
Bonds were drifting before Plosser spoke, with the Standard & Poor’s 500 Index (SPX 1,314, +4.14, +0.32%) up 0.4% Friday, heading toward a weekly gain of 2.8%. See stock story.
“There wasn’t much driving Treasurys higher earlier this month except the safe-haven bid” due to the earthquake and continuing nuclear crisis in Japan, protests and fighting in the Middle East and North Africa and deteriorating debt problems in Europe, Canavan said.
“Lots of participants weren’t willing to sell, given the rally, but were also not buying into the idea that the response was anything more than a knee-jerk reaction,” he said. “That petered out at the end of last week.”
Traders may already be preparing for next week’s trio of U.S. auctions, which often entail selling current holdings of a maturity to be auctioned to get a better price on the newer, more liquid securities.
Also, late next week, the U.S. will release its monthly employment report — always one of the most closely watched pieces of data.
