MW: Treasury market buffeted by Chinese stimulus, Greek worries
NEW YORK (MarketWatch) — Treasury yields edged higher on Monday as investors weighed the impact of Chinese stimulus against continued worries about Greece’s finances.
The People’s Bank of China’s new program, which will permit Chinese banks to lend more money, made investors more willing to buy riskier assets, pushing them out of Treasurys.
The announcement had a “psychological influence” in the Treasury market, considering how great a portion of global growth stems from China, Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said in a note.
But that enthusiasm for riskier assets was tempered by news about Greece, including reports that the Greek government has ordered state agencies, pension funds and local government entities to transfer their cash reserves to the central bank.
The Treasury market “has been trading with the [Greek debt crisis] in the background for over a year…It is a week-to-week conversation that the markets keep pricing in,” said Tom Tucci, head of Treasury trading at CIBC World Markets Corp.
The next meeting of eurozone finance ministers, known as the Eurogroup, is Friday, but that is not a “drop-dead deadline” but rather another step in the negotiations between Greece and its creditors, Tucci said.
Greece’s next repayment dates are May 1, when it must pay 202 million euro ($217.40 million) to the International Monetary Fund, and May 8, when 1.4 billion euros ($1.51 billion) in Treasury bills mature. Another 771 million euros ($829.78 billion) is to be repaid to the IMF on May 12.
Last week, bond investors sought U.S. Treasurys and dumped Greek bonds on news that Greece missed its budget targets for 2014. The 10-year benchmark Greek bond yield reached a 29-month high of 13.022% on Friday and continued to climb on Monday, jumping another 31.8 basis points to 13.343%.
Aside from Greece, the calendar for U.S. investors is relatively quiet this week, with little data due and a meeting of Federal Reserve policy makers next week. On Monday, New York Fed President William Dudley expressed no urgency to raise interest rates. The usual blackout ahead of the meeting means there now will be no more comments from Fed speakers until after the meeting.
There is likely to be less intrigue ahead of the coming Fed meeting than is typically the case, Ward McCarthy, chief financial economist at Jefferies, said in a note.
As the Fed has signaled a “data-dependent” approach to increasing interest rates, the market is still digesting last week’s economic data releases which “were mixed, but could again be characterized with the now-familiar story of not measuring up to expectations,” McCarthy said.
One of the mysteries of the past half year has been the sluggish response of consumer spending to lower gasoline prices, Goldman Sachs economists said in a report dated Friday. Consumers have been pocketing the savings from lower prices at the pump, rather than spending it.
“We expect that consumers will open their wallet a bit more in Q2, contributing to a pickup in growth,” the report said.
Late Monday morning, the yield on the benchmark 10-year Treasury note TMUBMUSD10Y, +0.84% rose 2.9 basis points to 1.879%, according to Tradeweb.
The yield on the two-year note TMUBMUSD02Y, +0.00% increase 0.8 basis points to 0.512%. The 30-year bond TMUBMUSD30Y, +1.30% yield rose 4.1 basis point to 2.546%. Bond yields move inversely to prices, declining as prices rise.
