- CHICAGO (Reuters) - U.S.
Treasuries rose sharply on Wednesday as monthly retail sales and import
data solidified expectations for the Federal Reserve to cut interest rates,
probably in June.
-
- The benchmark 10-year note yield briefly dropped at midday
to a 45-year low of 3.545 percent as economic pessimism gathered pace.
Bond prices move in the opposite direction of yield.
-
- The string of deflationary data, and prospects for more
to come, heightened the potential for a rate cut and sent the 30-year bond
surging by 2 points.
-
- U.S. April retail sales dipped 0.1 percent, against a
forecast of a 0.4 percent rise, while April import prices fell by 2.7 percent,
the largest amount since the data series started.
-
- "Whisper numbers" for wholesale and consumer
inflation are being lowered based on the import data, said Tony Crescenzi,
chief bond market strategist with Miller Tabak & Co.
-
- The April producer price report is due Thursday and consumer
prices on Friday. "The latest inflation news will have a downward
bias," Crescenzi said.
-
- Much of the drop in monthly import prices came from petroleum,
down 16.2 percent, but nonpetroleum prices eased by 0.9 percent, with those
for industrial supplies down 9.7 percent, the largest decline on record.
-
- And while falling gasoline prices also accounted for
much of the retail sales decline, Americans spent less on clothing, home
furnishings and eating out.
-
- Bob Gay, head of fixed-income strategy at Commerzbank
Securities, said consumers were facing a jobless recovery and deteriorating
prospects for real wage growth.
-
- "People are willing to pare back their lifestyles.
Many things start to look expensive or even frivolous," Gay said.
-
- Kansas City Federal Reserve President Thomas Hoenig gave
the party line in a speech late Tuesday, saying he saw little prospect
of low inflation turning into deflation.
-
- Geopolitical jitters spurred buying in Treasuries. There
was talk the U.S. government might raise the color-coded terror alert after
Monday's bomb attacks in Saudi Arabia.
-
- Home loan refinancing, for months a key element in shoring
up household balance sheets, is soaring again as mortgage interest rates
fall.
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- The Mortgage Bankers Association of America on Wednesday
said its home loan refinancing index jumped 19.3 percent in the week ended
May 9.
-
- Mortgage dealers continue to buy Treasuries, especially
10-year notes, to hedge against mortgage bonds that are being redeemed
when homeowners refinance.
-
- Increased foreign buying is apparent as well. "With
the dollar down, there is a good risk-reward for foreign buyers to buy
U.S. Treasuries," said Crescenzi.
-
- The Federal Reserve was also in the open market on Wednesday,
adding permanent bank reserves by buying U.S. Treasury coupons dated Aug.
31, 2004, through Feb. 15, 2005.
-
- The 30-year bond US30YT=RR yield made a record low after
the retail sales report, and subsequently sunk to 4.49 percent, below traders'
target of 4.50 percent, as prices -- which move in the opposite direction
from yields -- rose by 2 6/32.
-
- The 10-year note slashed through a cyclical low of 3.56
percent from October and March. The 10-year note US10YT=RR was up 17/32
for a yield of 3.54 percent, down from 3.61 percent late Tuesday. Two-year
note yields US2YT=RR sat at 1.43 percent, and five-year note yields US5YT=RR
were at 2.53 percent.
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