Posted on 02/09/2009 11:58:14 AM PST by genghis
Overview: US bond yields climb amid oversupply fears By Dave Shellock
Published: February 9 2009 18:18 | Last updated: February 9 2009 18:18
US government bonds yields climbed to their highest levels for more than two months on Monday ahead of the Treasury’s record $67bn of issuance this week.
Treasury bond climbed back above the 3 per cent level for the first time since late November.
“If the market chokes on this supply, it might not only mean higher yields but it could start to weigh on the dollar,” suggested Steve Barrow, currency strategist at Standard Bank.
“With foreign investors holding just under a half of the Treasury market, it is pretty clear that they need to step up to the plate if yields are not to rise sharply and the dollar is to avoid disaster. Of course, they could be aided by another buyer very soon – the Federal Reserve.”
By midday in New York, the ten-year note was up 4 basis points at 3.04 per cent, while the 30-year yield was 3bp higher at 3.73 per cent and the two-year was 3bp higher at 1.03 per cent.
John Higgins at Capital Economics said he was surprised at the speed and scale of the recent Treasury sell-off but remained reluctant to concede that the bond market party was over yet.
“Long-term Treasury yields should renew a downward trajectory soon,” he said. “A prolonged period of ultra-loose monetary policy, the onset of deflation and the ever-present possibility of Fed purchases remains a bullish cocktail.”
Supply concerns also drove European bond prices lower as investors braced for €18bn of issuance this week , mostly in the 10-year area.
The yield on the 10-year Bund touched 3.44 per cent, the highest since November, before easing back to trade flat at 3.38 per cent. UK Gilts followed the downward trend, with the 10-year yield rising 2bp to 3.77 per cent.
In Tokyo, the 10-year JGB yield fell 1bp to 1.32 per cent as better than expected Japanese machinery orders data failed to dispel the gloomy outlook on the country’s economy.
Equity markets struggled for traction amid uncertainty about President Obama’s economic stimulus package and disappointment that the announcement of the US bank rescue plan had been delayed until Tuesday.
“Any protracted wrangling over the stimulus package or lack of clarity on the financial stabilisation package is likely to dent sentiment this week,” said Thomas Stolper, strategist at Goldman Sachs.
John Hardy, consulting foreign exchange strategist for Saxo Bank, said the focus remained firmly on Treasury secretary Tim Geithner’s plans for the banks.
“There is still considerable uncertainty surrounding the nature of the eventual ‘solution’ to their constantly eroding balance sheets,” he said.
Wall Street saw choppy trading and by midday the S&P 500 index was up 0.1 per cent as investors digested a fresh wave of disappointing corporate earnings.
European stocks put in more confident performance, with the FTSE Eurofirst 300 index rising 0.5 per cent to a four-week closing high as energy stocks were helped by a rise in crude prices.
Barclays, the UK’s third-biggest bank, gave the London market a boost as it unveiled better than expected quarterly results and said credit market losses were waning. The FTSE 100 index rose 0.4 per cent.
Asian markets were mixed, with the Nikkei 225 in Tokyo falling 1.3 per cent led by a sharp fall for brokerage Nomura after it announced a $3.3bn capital raising. Elsewhere, however, Hong Kong rose 0.8 per cent and Shanghai climbed 2 per cent amid fresh optimism about China’s economic outlook.
On the currency markets , hopes that the US bank bail-out plan would boost the ailing global financial sector dented safe-haven demand for the dollar. The higher-yielding Australian and New Zealand dollars were particular beneficiaries.
Sterling climbed to within a whisker of the $1.50 level as Barclays’ results helped improve sentiment towards UK financial stocks.
In commodities, oil prices forged ahead amid speculation of further production cuts by Opec to stabilise the market. Nymex March West Texas Intermediate rose 77 cents to $40.94 a barrel.
Gold, meanwhile, slipped back below $900 an ounce as risk aversion showed signs of declining.
Base metals prices ran into pockets of profit-taking after last week’s strong gains, with copper slipping 1.4 per cent to $3,550 a tonne. Copyright The Financial Times Limited 2009
BOHICA
The head of a pin? You are being TOO generous!
Oh, I lookee there -- some propane and chlorine tankers coming round the bend. OOPS! Got to run, I mean really run!
Nothing to see here, move along, move along.
I’m not reading all that. are bond yeilds increasing because we are recovering or because the rest of the world is worse?
Such is the stuff of which Maddoff is very proud. Our Gov’t is becoming one giant PONZI scheme. The Treasury issues an IOU and the Fed redeems it with fake money. The same is true of SSI.
IMO a big catastrophe in the offing when the music stops. The Porkulus Package only hastens the arrival of that time.
“U.S. bond yields climb”
Note to US citizens.....get used to seeing this headline in the coming years.
If the Fed keeps printing money to buy T-Bills, everyone will recognize that the US gov is monetizing its debt and will sell us NOTHING in exchange for dollars-- no oil, no copper, no zinc, no spare parts, no imports at all.
At that point the wheels come off the whole world economy.
Not this time. Inflation is so far down that these days the big worry is deflation; and bond yields are going up because unlike inflation they can't go negative.
We've got to realize that sometimes the dollar does things that the US government has no control over, and the reason is that most existing dollars are not inside the US and they're not subject to US laws or policy. The same goes for US money creation --most happens overseas. The Swiss gov't is selling T-bills now (Two Overlooked, but Revealing Developments - Marc Chandler, BBH). This means that when the Fed tries to lower interest by buying bills, they have to also buy of foreign ones too before they make an impact on interest rates.
Welcome to the 21st century!.
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