Volatile commodity prices gave the Treasury market a bumpy ride to higher yield levels yesterday.
Prices ended lower across the maturity spectrum, with the 30-year bond ending down 11/32, to yield 6.18%.
Higher commodity prices sent panic waves through an already nervous U.S. debt market yesterday. The Commodity Research Bureau's index rose more than one point and ended the session at 223.20.
The CRB got whipsawed around by a tug of war between higher oil prices and lower precious metals and lumber prices.
Oil reigned supreme as an Iranian news agency reported that the Organization of Petroleum Exporting Countries will discuss plans to cut production quotas 3% to 5%.
Treasury yields moved up and down in tandem with commodities. Note and bond prices rose through the morning as declines in prices of Precious metals and lumber pressured the CRB lower. But Treasuries changed direction and fell into negative territory as rising oil prices pumped the closely watched index higher.
Higher commodity Prices come at a time when investors in fixed-income government debt are particularly nervous about inflation. With the U.S. economy showing signs of expansion in every comer and public and private-sector economists forecasting strong growth in the fourth quarter, investors grumbled that higher goods prices are a worrisome development.
"A lot of funds are long on bonds, and if these funds trigger off sells we could experience a rout in the market," said Jay Goldinger, chief investment officer at Capital Insight Inc. in Los Angeles. "Higher commodities are a concern."
Technical factors were another negative for the long end of the yield curve, as the December futures bond contract failed to break above resistance at 117.50, prompting a sell-off of longer-dated paper.
While the long end of the cash market was concerned with the implications of higher prices in the economy, the short end was disappointed that the Federal Reserve did not announce a permanent addition of reserves. Fed-watchers had predicted a coupon pass yesterday, and the market sold off when it became apparent that it wouldn't get one.
"People bought securities thinking they would sell them to the Fed later