August 9, 2011 by staff
Treasury Bonds, U.S. Government bonds fell on Tuesday as investors ventured back into riskier assets in search of value after global selloff on Monday in stocks, corporate bonds and industrial raw materials.
Prices of U.S. government securities extended losses when stocks rose and cut losses when stocks shave gains. The major stock indexes. SPX.IXIC.DJI were higher just before noon.
By contrast, the 10-year bond fell 24/32 Treasury, increasing its yield to 2.40 percent, erasing almost 1 / 3 of the gain of the previous day.
“The bond market is reacting to the rebound in equities,” said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago.
Bond traders are preparing for the first auction of U.S. Treasury note since lowered debt Standard & Poor U.S. Treasury.
The Treasury plans to sell and $ 32 million in three years, the notes, the first sale of a return of three parts that include the sale of 10-year notes on Wednesday and the 30-year bonds on Thursday.
In “when issued” trading, traders expect the new edition of three years by August 2014 to sell at a yield of 0.513 percent, according Tradeweb.
Besides being the first sale of Treasury note and that S & P downgrade, the auction of three-year note is further complicated by its proximity to a statement from the Federal Reserve.
The policy of the Federal Committee of the Federal Reserve Open Market held a regular meeting and is expected to issue a statement around 14:15. just one hour and fifteen minutes after the 1 pm deadline for bidding for three-year notes the Treasury.
Therefore, if investors stay away from the auction, leaving much of the matter to the dealers, as in auctions of Treasury bills on Monday, the Fed says it could help determine whether people bought score gains or losses of the auction.
But how the U.S. Treasury market will react to a statement from the Fed is complicated by the fact that the bonds could have direct and indirect reactions with the message of the Fed and if the bonds move up or down will depend on which of them dominate.
A statement from the Fed dove could support riskier assets like stocks, product distribution, and industrial products. This could leave bond prices lower and yields higher as investors feel less compelled to buy safe-haven assets.
However, a pacifist statement from the Fed must also be supportive for bonds. Language stating that the U.S. the central bank will keep short term rates low for an extraordinarily long time, a stronger commitment than the current Fed “prolonged period” of language, might encourage bond investors to buy Treasuries long to capture better yields.
A dove release of the Fed, which left the door open for third phase of the quantitative easing which more Fed purchases of U.S. Treasury bonds could cause those Treasuries rally, especially in the abdomen called the curve.
The need for the duration, asset allocation, a Fed desperately to maintain zero interest rate policy, “and a small door opening in QE3 … will ultimately benefit the stomach,” said David Ader, strategist government bonds at the head CRT Capital.
But while the announcement of the FOMC’s policy is “clearly the big event this week, investors may be disappointed in their search for more than (Fed Chairman Ben) Bernanke than it can offer in this meeting,” said Cary Leahey, managing director and senior economist at Decision Economics in New York.
“The weaker economic activity and market dislocations facilitate the Fed more likely, a substantial minority of members of the FOMC that the Fed has done enough and that further expansion of the Fed’s balance sheet is not the medicine that needs economy, “he said.
“GDP growth is anemic, but jobs are being created in 2011, unlike this time in 2010 when payrolls shrinking,” he said. “As the economy churns employment growth, the hawks are not ready to return to the nest and become doves.”
However, if the Fed soft pedals the economic evaluation, if they talk about lowering the prices of commodities, if we talk again about the use of “tools to promote recovery,” or if they mention “unresolved” market conditions that could comfort equity investors, said Leahey.
Too large of a response to a statement from the Fed dove “could lead to a clarification of the Fed later in the week, not unlike what happened to the markets in the first and second day of Bernanke’s most recent Humphrey- Hawkins testimony, “Leahey said.
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