Cantor Fitzgerald

George Goncalves Comments: Bonds Tread Water as Wall Of Cash Greets First Tranche Of New Issuance This Week - Investor's Business Daily Online

Investor's Business Daily Online, November 24, 2009

Despite $118 billion in new Treasuries hitting the market this week and rising stock prices, demand for the safety of government debt has limited losses as traders seek to lock in gains for the year. Stronger home-sales data released Monday also failed to put real pressure on Treasuries, as investors brushed off an uptick in existing-home sales for October.

"This is an indication of the wall of cash that's being put to work in all asset classes, including the front end of the Treasury curve," said Michael Pond, a Treasuries strategist at Barclays Capital. "We do think that yields should have gone higher, given what equities and the data did, but we recognize there's just a slew of cash in the market." In another sign of unwavering demand, the government sold two-year notes at the lowest yield ever. The auction was not considered a blowout, especially compared with October. But two-year yields were 22 basis points higher in the sale a month ago.

Stocks were boosted in part by a weaker dollar and suggestions from a Federal Reserve official that fiscal stimulus should be maintained beyond what was originally planned. St. Louis Fed President James Bullard on Sunday night said the central bank should keep alive its mortgage-related asset purchase program beyond a planned end date. After the two-year sale, the benchmark 10-year note's yield was unchanged at 3.37%, while the 30-year bond was 1/32 lower in price to yield 4.30%.

Treasuries appeared little affected by data showing that sales of existing homes rose in October to the highest in more than 2 1/2 years. Sales surged a record 10.1% to an annual rate of 6.10 million units from September. Analysts polled by Reuters had been looking for sales of 5.70 million.

"There are a lot of folks that will comb through these (home sales) numbers to figure out the rationale and justification for them," said George Goncalves, chief fixed-income strategist at Cantor Fitzgerald. "On the surface it's better than expected, but there's the belief in the bond market that a lot of these numbers are being artificially propped up through government intervention."

The two-year note was trading unchanged in price to yield 0.74%.