For October, U.S. debt facing worst month since December
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices jumped Monday, pushing yields down, driven by demand for a safe haven due to a combination of resurfacing worries about European debt and Japan’s announcement that it would intervene in currency markets to weaken the Japanese yen, which also boosted the U.S. dollar.
Yields on 10-year notes 10_YEAR -5.62% , which move inversely to prices, fell 10 basis points to 2.22%. A basis point is 1/100 percentage point.
Yields on 2-year notes 2_YEAR -11.63% declined 2 basis points to 0.27%.
Thirty-year-bond yields 30_YEAR -4.51% dropped 13 basis points to 3.25%.
Japan sold an undisclosed amount of yen on the foreign-exchange market Monday, after the country’s currency hit a post-World-War-II record high against the U.S. dollar. To weaken its currency, Japan ends up buying more dollars, which tend to get invested in U.S. Treasury debt. Read about dollar, yen intervention.
“Treasurys were bid overnight on intervention-flow anticipation as [Japan’s] Ministry of Finance announced it will be selling yen versus the dollar to slow the rise of the Japanese currency,” said bond strategists at CRT Capital Group.
The gains for bonds extended a rally Friday, pushing yields down from the highest level since August. Markets are reassessing the longer-term prognosis for Europe after the prior sessions’ relief driven by a broader European Union plan to deal with the region’s sovereign-debt crisis. See more on Treasury rally Friday.
Also helping bonds: It’s the last day of the month, when many fund managers who adjust holdings to match their benchmark indexes buy more U.S. bonds.
“Weekend press on the EU summit did not read well, such that flows since the summit are likely also to reflect profit-taking after a strong positive reaction to the summit,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.
“Month-end flows will also likely benefit bonds over equities,” as a big gain in stocks and rise in yields forces investors to readjust their allocations,’ he said. However, that may lead to a bear market for bonds “which is our view, or it could be that a new wave of the EU contagion is beginning,” Gilhooly wrote in a note.
U.S. stocks lost ground, with the Standard & Poor's 500 Index SPX -1.66% losing 1.2%.
As for the only U.S. data for the session, a reading on Chicago-area manufacturing showed business grew slower this month. Among the key events this week are a report Tuesday on national manufacturing activity and the Federal reserve’s two-day policy meeting ending Wednesday. Read about Fed meeting expectations.
After that will come Friday’s nonfarm employment report for October. Read about payrolls.
Monthly, yearly performance
Treasurys of all maturities have fallen 1.44% in the month through Friday, according to an index compiled by Bank of America Merrill Lynch.
It’s the first month in the red since March and the worst monthly performance since December.
Treasury bonds have still returned 7.23% this year.
As for other fixed-income sectors, corporate bonds have gained 1.13% this month and are up 6.82% so far in 2011. See story on corporate bonds’ gains.
High-yield bonds, also known as junk bonds, jumped 6.08% this month, turning a loss for the year to a 4.28% return, according to Bank of America Merrill Lynch.
Mortgage bonds slipped 0.13% this month but are up 5.11% in 2011.
Municipal bonds lost 0.67% this month but remain up 8.17% so far this year.
