Yield on 10-Year Treasury
Climbs to Five-Year High
By LAURENCE NORMAN
June 12, 2007 4:04 p.m.
The yield on the benchmark 10-year Treasury note reached its highest level in more than five years Tuesday afternoon, as prices continued to slump amid broad market selling.
The yield tapped as high as 5.27%, a level it last reached in mid-May 2002, before closing at 5.25%, also the highest since May 2002. The price on the 10-year bond was down 23/32, or $7.19 per $1,000 invested, at 94 8/32.
The 30-year long bond caved in 1 14/32 to 90 24/32 to yield 5.37%, rising above the 5.3% mark for the first time since July 2004. The two-year note was off 3/32 at 99 20/32, yielding 5.08%. Prices and yields move inversely.
For the last couple of weeks, Treasurys have been under sustained pressure amid stronger economic data, selling from the mortgage community and the paring back of long positions -- exposure that assumes Treasury prices will rise -- all weighed on the market.
Tuesday's selling again came most heavily in longer-term Treasurys, producing a further steepening of the yield curve. The benchmark yield curve -- the spread between two- and 10-year rates -- was at its steepest level in more than a year.
"The market has gotten ahead of itself, but we're not going to fight it and the trend remains intact until we see some stability. We've seen some monumental shifts breaking the technical pattern," said George Goncalves, chief Treasury, TIPS and agency strategist at Morgan Stanley. He said that "old-school real money guys are really in a buy-freeze mode."
There was no particular trigger for Tuesday's selling although some bond traders pointed to hawkish overnight comments from foreign central banks and an uptick in Chinese inflation. There were no major U.S. data.
That underlines how much of the recent sell-off seems to have been down to market momentum and technical factors such as the scaling back of long positions. In addition, there has been continued selling from mortgage bondholders, who have had to pare back longer-dated Treasurys to reduce the duration in their portfolios as yields spiked.
Also weighing Tuesday was a reopening auction from the Treasury Department. The government sold $8 billion 10-year notes, reopening an issue that was sold last month. The market was under pressure ahead of the sale and tepid demand for the notes briefly led to renewed selling afterwards.
Dominic Konstam, head of interest rate strategy at Credit Suisse in New York, said that given the momentum in the market, the 10-year yield could get to 5.40% if it can clearly breach the 5.25% level. "We could see more unwind of the [yield curve] … and pretty much get the curve back to fair value shape," he said. "We would expect the market to hold in well there and have a decent rally down the road."
One of the reasons Treasury yields have faced upward pressure is that investors have been slashing their bets that the Federal Reserve would cut rates at some point in 2007. From pricing in as many as two rate cuts earlier this year, investors in interest rate futures markets now forecast no Fed moves until the middle of next year.
Despite Tuesday's steady declines, the bond market managed to take in stride comments from former Fed Chairman Alan Greenspan. In remarks before a meeting of the Commercial Mortgage Securities Association in New York, Mr. Greenspan said the historic lows seen in long-term U.S. yields over the last several years will eventually end, although the recent modest rise in the 10-year Treasury note may simply be a temporary development.
The former Fed chief explained that as growth rates in the developing world eventually slow, and savings rates there rise, "real interest rates will start back up" and drive up yields on issues such as the 10-year note. But he added that he was unsure about the timing of this shift, although he suggested it could be soon. Mr. Greenspan said of bond market developments over recent days that "at a minimum we are looking at a cyclical upturn in yields," and "it's too soon to get a consensus or an evaluation as to whether that's all that it is." |
发表于 2007-6-13 08:38:13
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