George Goncalves Comments: Treasury To Outline Needs As Investors Seem Split - The Wall Street Journal
The Wall Street Journal, November 2, 2009
After digesting a record amount of debt last week, U.S. governmentbond investors will get news of more supply this week with the announcement of the Treasury' s financing needs to year-end.
The news comes in two stages: Monday, the government will outline its funding needs for the October-to-December quarter Wednesday, it will present details on how it plans to raise funds to replace maturing debt. In its quarterly refunding announcement, the government is expected to increase the amounts of its three-, 10- and 30-year salesto be November-by Novemberby $1 billion each, selling $40 billion in three-year notes, $24 billion in 10-year securities and $16 billion in 30-year bonds. That is a fraction of the total issuance for the quarter given the record budget deficits that need to be financed.
A survey from industry group Securities Industry and Financial Markets Association projects net Treasury bill, note and bond issuance will hit $444.5 billion in the fourth quarter, up from the net $392.5 billion issued in the third. he Treasury is also likely to announce Wednesday that it will replace 20-year Treasury inflationprotected securities with 30-year TIPS, which were last sold in 2001. The refunding news comes in the middle of a hectic week, marked by four central-bank meetings and a slew of top-tier data.
While it is unlikely the Federal Reserve will tinker with its key interest rate when it meets Tuesday and Wednesday, investors will parse the Fed's statement for any clues about an eventual withdrawal of the massive liquidity it has pumped in.
How the market deals with the news remains to be seen. Some analysts say there will be continued strong demand for government debt, given the tame inflation outlook and lack of supply in other sectors as the credit crunch continues.
"I still think a spike lower in rates is extremely possible, "said Lou Brien, a market strategist at DRW Holdings in Chicago. The 10-year yield could even hit a new low, he said, starting this year to make a move back toward the 2.04%% it hit in late 2008, and possibly eventually reaching a level in the high 1% range. Late Friday, the 10-year Treasury was yielding 3.39%. Bond yields move inversely to prices.
George Goncalves, managing director and head of fixed income rates strategy at Cantor Fitzgerald in New York, said he expects Treasury yields, especially longer-term ones, to drop, though not quite as far. He sees the 10-year yield touching 2.9% by the end of the year.
Meantime, worried that Treasury yields could shoot much higher as the economy steadily improves and worries intensify about interestrate increases, some longer-term investors have already started to sell Treasurys.
