Treasuries Fall Victim to Tech Rally
NEW YORK – Shorter-dated U.S. Treasuries fell for a fourth straight day on Thursday as investors, shrugging off a slew of economic reports pointing to a weakening economy, sold bonds and bought technology stocks.
Pushed by newfound momentum in equity markets, bond dealers liquidated positions in Treasuries -- despite news of rising jobless claims, a drop in retail sales, sliding consumer confidence and tame inflation, all supportive of more interest rate cuts from the Federal Reserve.
``The selling begat more selling,'' said Robert Lunder, head of government bond trading at Bear Stearns, describing the constant pressure on Treasuries all week long.
Chain-reaction losses in Treasuries pushed two-year note yields, which move inversely to price, up a whopping 0.28 percentage point on the week, reflecting sharply reduced expectations for an interest rate cut before the Fed's May 15 policy-setting meeting.
Thomas Connor, head of government bond trading at J.P. Morgan Chase, said the Treasury market had priced in as much as 0.75 percentage point of interest rate cuts between now and June and was ahead of itself as the shortened week began.
``And the equity market has lost any downside momentum it had, so those are two warning shots right there,'' Connor said.
U.S. financial markets will be closed for the Good Friday holiday.
At the early 2 p.m. pre-holiday bond market close, two-year Treasury notes were down 5/32 to 99-24/32, yielding 4.38 percent. Five-year notes finished 9/32 lower at 104, yielding 4.77 percent, for a 0.30 percentage point, or 30 basis point, rise on the week.
Benchmark 10-year notes ended down 9/32 to 98-24/32, yielding 5.16 percent, up 27 basis points on the week. Thirty-year Treasury bonds rose 4/32 to 96-20/32, yielding 5.61 percent, but their yield rose 15 basis points since last Friday.
In midafternoon trading, the technology-weighted Nasdaq Composite index was up 38 points or 2 percent at 1,937. The Dow Jones industrial average was up 46 points or 0.46 percent at 10,059.
Early in the session, the government reported a 0.2 percent fall in retail sales during March, below economists' forecasts, after zero sales growth in February, which gave Treasuries an early push upward that was later reversed.
Some investors are concerned that the pause in consumer spending, which accounts for two-thirds of economic activity, could turn into a sharp slowdown in the months ahead.
Meanwhile, the Producer Price Index, which measures price inflation at the wholesale level, fell by 0.1 percent last month. Stripped of its more volatile food and energy components, the core PPI rose a mild 0.1 percent.
Separately, the Labor Department reported the biggest surge in weekly jobless claims in five years. Claims rose to 392,000 in the week ended April 7, the most since March 1996.
Midmorning news that consumer confidence resumed its recent slide in April also served to push Treasuries higher before stock market gains knocked bonds back.
The University of Michigan's preliminary consumer sentiment index, which gauges consumers' attitudes about the economy and their current finances, fell to 87.8 in April from 91.5 in March, far more than the fall to 90.4 analysts had expected.
Consumer sentiment has now fallen off since late last year to its lowest level in seven and a half years.
And in an indication that the economic slowdown was beginning to take a bite out of Americans' pocketbooks, the current conditions index, which gauges consumers' current financial picture, tumbled sharply to 98.7 from 103.4 in March, also its lowest reading in seven and a half years.
``The change in confidence that you've seen is consistent with a mild recession,'' said Joseph LaVorgna, an economist at Deutsche Bank Securities, who said he expects confidence to continue its slide in the months ahead.