The Treasury market continued to get crushed beneath the wheels of a revving economy yesterday and prices ended lower across the yield circuit.
The 30-year bond ended down 21/32, to yield 6.37%.
Perceptions that the economy has caught gear and that growth will accelerate through the end of the year drove some investors to sell government paper yet again yesterday.
While price declines were moderate, players said a number of funds were in the market making inquiries about levels to sell Treasuries. Long-term accounts have lightened inventories in recent sessions on fears that the economy is heating up and that inflation will soon follow.
Against that backdrop, dealers have voiced concern about a general lack of interest from players on the buy-side of the market.
"We don't see much activity by retail investors, particularly from those looking to buy," said Charles Lieberman, director of financial markets research at Chemical Securities Inc.
Little fresh news arose to inspire trading yesterday and most market players remained passive observers to the downtrend in prices. The market edged lower through the morning as players try to digest last week's sharp sell-off and gear up for this week's round of Treasury auctions and economic reports.
The monthly two-year note auction attracted a modest amount of interest. The stop-out rate on the Treasury's auction of $17.01 billion of two-year notes was 4.27%. The Treasury received bids totaling $46.6 billion and accepted $17.01 billion, including $585 million of noncompetitive tenders, down from $866 million at the previous two-year note auction on Oct. 26.
While demand for the issue was underwhelming, market analysts considered it reasonable, given the pounding that the Treasury market has taken since over the last month.
Steven Wood, director of financial markets research at BA Securities Inc. in San Francisco, said the sharp declines at the long end of the market have benefited the two-year auction as investors have shifted cash to the less-volatile short end of the curve.
A harder sell yet is today's auction of $11 billion in five-year notes. Traders do not expect the issue to attract much demand due to its position on the yield curve. The intermediate sector as has experienced a significant amount of volatility in recent weeks and sent investors looking for a more stable environment is place their money, such as the short end.
Noting tepid demand for the two-year sale and expectations for a lackluster interest in the five-year, Wood pointed to less aggressive bidding by U.S. banks with loan demand perking up across the nation.
The Federal Reserve's quarterly lending survey released yesterday found consumer demand for credit continuing to grow, a trend which economists said has been apparent for several months. The survey also found that that business credit demand remained flat.
This week's slate of economic statistics include the October durable goods and the Johnson Redbook survey of weekly retail sales activity.
Broad-based signs of growth have put fixed-income investors on the defensive in recent weeks and placed increased significance upcoming economic indicators.
"The big uncertainty is how the economy will perform after the first of the year," said Wood. "I see people as getting very defensive."
In budget news, the federal budget deficit narrowed to $45.34 billion in October from a $48.79 billion deficit a year earlier, the Treasury said.
Last month's budget gap compared with an unrevised surplus of $8.30 billion in the previous month.
In its monthly statement, the Treasury said receipts totaled $78.67 billion last month, compared with $76.82 billion a year earlier and $127.47 billion in the previous month. Outlays totaled $124.01 billion last month, compared with $125.62 billion a year earlier and $119.17 billion the month before.
In futures, the December contract ended down 12/32 to 114.20.
In the cash markets, the 3 1/8% two-year note was quoted late yesterday down 1/32 at 99.11-99.12 to yield 4.21%, the 43/4% five-year note ended down 7/32 at 98.00-98.02 to yield 5.19%, the 53/4% 10-year note was down 14/32 at 98.29-99.01 to yield 5.88%, and the 6 1/4% 30-year bond was down 21/32 at 98.06-98.10 to yield 6.37%.
The three-month Treasury bill was up one basis point at 3.13%, the six-month bill was up two basis points at 3.30%, and the year bill was unchanged at 3.50%.Treasury Market Yields Prev. Prev. Monday Week Month3-Month Bill 3.13 3.10 3.056-Month Bill 3.30 3.24 3.181-Year Bill 3.50 3.38 3.312-Year Note 4.21 4.07 3.903-Year Note 4.59 4.42 4.195-Year Note 5.19 4.98 4.777-Year Note 5.42 5.22 4.9910-Year Note 5.88 5.64 5.4130-Year Bond 6.37 6.15 5.99Source: Cantor, Fitzgerald/Telerate