NEW YORK: US Treasury debt prices rose on Monday, with most gains appearing in the longer maturities on the yield curve, reflecting expectations that last Friday's disappointing US payrolls report had increased the chances of a third round of monetary easing measures by the Federal Reserve.
The major stock indexes were each trading around 1 percent lower, another booster for Treasury prices.
But trading volumes were light, as markets in Europe and Britain remained closed for the Easter holiday. Raymond Remy, a Treasury trader at Daiwa Securities in New York, estimated market volume was only half what it would be on a normal Monday.
"The market's really quiet," Remy said. "This despite the fact that we have a lot going on this week with buybacks, sellbacks and auctions."
The Fed is both buying and selling Treasuries this week as part of its Operation Twist, a program to extend the overall maturity of its portfolio and lower long-term interest rates. Meanwhile, starting on Tuesday, the Treasury Department will auction $72 billion in three-year notes, 10-year notes and 30-year bonds.
Friday's nonfarm payrolls report from the US Labor Department showed just 120,000 jobs were added during March, far below the market's median expectation of 203,000. Treasuries rallied after the report but the market was only open for half a day and other parts of Wall Street were closed for the holidays.
"We're seeing more overhang from Friday's weak payrolls report," said Gennadiy Goldberg, interest-rate strategist at 4Cast, Ltd. in New York.
"It definitely suggests that it's not a one-way trip out of the mess we're in at this point. The market was getting a little too optimistic on the data front.
"The Treasury market sold off a bit too fast. People were starting to price out the possibility of any more Fed action. Now they're rethinking that position."
Before Friday's payrolls report, signs of steady improvement in the US economy had been dampening expectations that the Fed would engage in more Treasury purchasing or a new mortgage buying program to further stimulate the economy by lowering long-term interest rates. Market participants had been interpreting recent statements by members of the Fed's policy-setting Federal Open Market Committee to mean that the bar for more easing was extremely high.
But analyst commentary on Monday widely echoed the notion that more easing wasn't as elusive as it had seemed just a week ago.
The holiday market closures and lack of significant US economic data on the calendar for Monday made Friday's report even more central to market action.
Mike Schumacher, head of rates strategy at UBS Securities in Stamford, Connecticut, said that in addition to the jobs data, the most significant driver of trading activity in Treasuries would be mortgage convexity hedging.
"The area of the worst negative convexity is right at 2.10 percent on the 10-year (yield)," he said. "There will be more rapid trading."
Mortgage convexity hedging is an operation performed by banks and market participants who hold mortgages on their books and decide they must prepare for a possible early repayment of some of the mortgage loans by selling Treasury notes.
The benchmark 10-year Treasury note was last trading 9/32 higher in price and yielding 2.03 percent, down from 2.06 percent at Friday's close. The 30-year Treasury bond was last up 19/32 in price and yielding 3.19 percent, down from 3.22 percent late on Friday.
Comments
Comments are closed.