US Treasury debt prices rallied for a fourth straight session on Friday, sending yields to three-month lows as pervasive credit fears amid talk of troubled hedge funds supported the market. A major source of concern appears to be that unspecified hedge funds may have gotten burned by downswings in the stocks and bonds of General Motors Corp and Ford Motor Co over the past two months. Worries about the ripple effects on financial markets from such losses have kept Treasuries well bid. Such anxiety had pushed yields on benchmark 10-year Treasury notes to 4.12 percent, compared with the 4.22 percent garnered at an auction on Thursday. Yields fell as low as 4.10 percent early.
"We have been hearing various rumours today about bad positions," said Andrew Brenner, head of fixed-income at Investec US "The last one deals with a convertible debt desk at a major primary dealer imploding. This continues to be a catalyst for the buying of Treasuries."
Analysts noted this effect was magnified by the large numbers of outstanding short positions in the market, essentially bets on a future drop in bond prices.
Many had shorted bonds last week in reaction to upbeat data, only to be caught on the wrong side of the trade as a flight to safety and a well-received auction of US government debt boosted prices.
Late on Friday the commitments of traders report showed that speculators added to short positions in five-year and 10-year futures in the week ended Tuesday, providing fuel for the short-covering fire.
"We expect the credit problems to continue next week and would expect 10-years to get to 4.08 percent," said Brenner.
The rest of the Treasury curve followed the 10-year's lead, with yields on the two-year note declining to 3.59 percent from 3.65 percent.
Five-year note yields ticked down to 3.82 percent from the 3.87 percent. The 30-year bond added 16/32 in price, its yield lower at 4.48 percent from 4.52 percent.
The day's economic data were mixed and had only a fleeting impact on the market.
The University of Michigan index of consumer sentiment dropped to 85.3 in May from 87.7 in April, surprising analysts who had looked for a rise to 88. However, such surveys appear to have scant correlation to actual consumer behaviour as shown by the hefty 1.4 percent jump in retail sales reported for April.
Other data showed import prices jumped 0.8 percent in April, twice the gain expected. However, half that rise was due to petroleum and the price of consumer goods actually dropped 0.1 percent on the month to be up a modest 1.1 percent on the year.
Finally, the government reported business inventories rose a slightly lower-than-expected 0.4 percent in March. That suggested a slight downward revision to first quarter growth, which will be swamped by the upward revision implied by the March trade data released earlier this week.
Analysts look for gross domestic product growth to be revised to 3.5 percent to 4.0 percent annualised from the 3.1 percent originally reported.
"The data is very much second tier, but the import prices and business inventories implications for inflation and growth respectively more or less offset each other, leaving the bond market to focus on other features as it continues to display remarkable resilience," said Alan Ruskin, research director at 4CAST Ltd.
Comments
Comments are closed.