Brian Edmonds Comment: Treasurys Modestly Higher Amid Month-End Buying
August 31, 2010, The Wall Street Journal
Treasurys rose modestly Tuesday as the market got a boost from month-end demand.
At the end of a month, many hedge funds and mutual funds need to rebalance their portfolios to match changes in indexes with which they are benchmarked. In many cases, that means fund managers need to buy newly minted debt to replace debt that has matured or moved out of the benchmarks, which helps to push up Treasury prices on the final day of a month.
The bond market, however, was off of its best levels of the day following two bits of U.S. economic data that calmed investors a bit. Figures on U.S. consumer confidence were better than expected and a report on manufacturing activity in the Chicago area was not as dire as some had feared, leading investors to move out of low-risk Treasury securities and into riskier investments such as stocks.
Recently, weaker U.S. data have fueled fears that the economy could deteriorate in the second half of the year, sending Treasury yields to record lows. The two-year yield hit a record low of 0.45% last week and the 10-year yield fell as low as 2.418%, a level last hit in January 2009.
The week's economic data, however, have thus far not been quite as disheartening as some had suspected.
In recent trading, the two-year note was flat to 0.497%, the 10-year was up 6/32 to 2.507% and the 30-year was up 13/32 to 3.560%. Stocks were lower earlier in the day but pushed into positive territory after the data. The Dow Jones Industrial Average was up 0.32% and the S&P was up by 0.28%.
Data showed U.S. consumer confidence increased more than expected in August. The Conference Board's measure of consumer confidence rose to 53.5 from a revised 51.0 in July. Economists surveyed by Dow Jones Newswires expected a reading of 51.0. The report also showed that consumer expectations for economic activity over the next six months rebounded in August, to 72.5 after plunging to a revised 67.5 in July.
Meantime, The Institute for Supply Management-Chicago said its business barometer fell to 56.7 in August from 62.3 in July. Economists surveyed by Dow Jones Newswires predicted the barometer would fall to 57.6.
Market participants will be closely watching national readings on U.S. manufacturing and the U.S. services sector Wednesday and Friday for further clues into how the recovery is faring. Fridays jobs report will also be key. Market participants are expecting the U.S. lost more than 100,000 jobs again in August and the unemployment rate ticked up, which should help to keep demand for Treasurys alive.
In general, "there continues to be a very big demand for Treasurys," said Brian Edmonds, head of interest rates at Cantor Fitzgerald & Co. "The economic data overall have been poor and the concerns about the economy are real."
Later Tuesday, market participants will be eager to see what the minutes from the Fed's latest meeting have to offer. Investors will be tuned into the debate that came ahead of the vote to use proceeds from maturing mortgage debt to buy Treasury notes.
The Fed, at its last meeting on Aug. 10, announced that it would reinvest those proceeds in an effort to continue to support the struggling economy.
The Fed minutes are scheduled for release at about 2 p.m. EDT.
