Brian Edmonds Comments: Treasuries Fall As US Industrial Production Exceeds Forecast
August 17, 2010, Businessweek
Treasuries snapped a two-day advance, pushing 10-year yields up from near a 17-month low, after a Federal Reserve report showed industrial production in the U.S. rose more than forecast in July.
Ten- and seven-year notes led the decline after data earlier showed producer prices and housing starts increased in July. The Fed bought $2.55 billion of Treasuries due from August 2014 to February 2016 today, reviving its purchases of U.S. debt to spur the economy by keeping borrowing costs down.
“The market had gotten overbought,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “There will be some spots here and there where the economy looks good. When the market didn’t see a quick flight to quality on the housing and PPI data, it decided to was time to get out of long positions and book profits.” A long position is a bet that a security will rise in price.
The yield on the benchmark 10-year note increased 7 basis points, or 0.07 percentage point, to 2.64 percent at 4:51 p.m. in New York, according to BGCantor Market Data. The 2.625 security due August 2020 dropped 19/32, or $5.94 per $1,000 face amount, to 99 29/32. The yield slid to 2.5591 percent yesterday, the lowest level since March 2009.
Two-year note yields rose 2 basis points to 0.5 percent, after falling to a record low of 0.48 percent earlier today. Thirty-year yields increased 6 basis points to 3.77 percent, after falling to a 16-month low of 3.71 percent yesterday.
‘Market Overextended’
“The market is poised to back up in rates,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of 18 primary dealers that trade with the Fed. “The market overextended itself in the last couple of days. Investors may wait for higher yields before they step back in.”
The positive data from the U.S. manufacturing sector gives a “firm start” to the second half of 2010, David Semmens, an economist at Standard Chartered Plc in New York, said in a note to clients.
