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Bonds dip as rising stocks curb safe-haven bid
Reuters, Wednesday July 30 2008
* Surprise U.S. private payrolls rise buffets bonds
* Treasury issuance prospects weigh
* Safety bid fades as stocks extend late day rally
(Recasts, adds comments, updates prices)
By John Parry
NEW YORK, July 30 (Reuters) - U.S. Treasury prices ended
lower on Wednesday after news of larger U.S. government
borrowing needs and waning demand for safe-haven assets as
U.S. stocks continued to recover.
Yet yields remained within recent ranges as concern
continued about the duration of the global credit squeeze of
the past year, despite extra moves by the Federal Reserve to
provide liquidity.
"Treasuries have been weighed by the refunding announcement
signaling increased supply. You also had the Fed extending
its credit facilities which gave a boost to stocks and
weighed on the Treasury market," said Carl Lantz, interest
rate strategist with Credit Suisse in New York.
Pressuring Treasury prices initially on Wednesday was a
surprise gain in private sector payrolls in July in a report
by ADP Employer Service.
"This number extends the debate about the economy," said
T.J. Marta, fixed-income strategist at RBC Capital Markets
in New York. "This does suggest a possible upward surprise
in non-farm payrolls," he said of the U.S. government's
employment figures to be released on Friday.
In addition news that the U.S. Treasury Department said it
planned to sell $17 billion of 10-year notes and $10 billion
of 29-3/4 year bonds next week weighed on US Treasury
prices.
That is more supply of these longer maturities for August
than was expected, wrote Ian Lyngen, interest rate
strategist at RBS Greenwich Capital in Greenwich,
Connecticut, in a note.
The Treasury said changes in the U.S. economy, markets, and
fiscal policy have caused an increase in borrowing needs,
adding that it will consider second re-openings of the
10-year note and a quarterly new 30-year bond issue.
However, in an action coordinated with the ECB and the Swiss
National Bank, the Fed also said it was extending its
emergency lending facility for investment banks through
January 2009 and introducing some new measures for its
liquidity auctions.
U.S. stocks gained as a result of the Fed's assurances on
liquidity, in the wake of the further write downs and a
capital raising by investment bank Merrill Lynch earlier
this week. The ten day recovery in stocks helped to further
erode the demand for safe-haven Treasuries.
But a bounce in crude oil prices during the session, on
falling U.S. gasoline inventories, limited gains in stocks.
Some analysts worried that the extra liquidity measures by
the Fed could add to the existing threat of inflation caused
by high food and fuel prices globally. The yield on most
U.S. Treasury bonds is currently less than the rate of
headline U.S. consumer price inflation.
"By pumping money into the economy that may create
inflation," said Keith Springer, President of Capital
Financial Advisory Services, in Sacramento, California.
"We have oil up a little bit and people are coming to
realize that inflation is back," Springer said. "The Fed
will have to raise interest rates", which will be higher in
6-12 months time, he said.
The benchmark 10-year Treasury note's price, which moves
inversely to its yield, was down 1/32 for a yield of 4.05
percent, versus 4.04 percent late on Tuesday.
The two-year Treasury note's price was unchanged for a yield
of 2.63 percent.
The 30-year Treasury bond's price slipped 7/32, for a yield
of 4.64 percent, versus 4.63 percent late Tuesday.
(Reporting by John Parry, Richard Leong and Chris Reese;
Editing by Kenneth Barry)
Keith Springer is Registered Investment Advisor and
President of Capital Financial Advisory Services, providing
Wealth Management, advanced Retirement Planning and Mortgage
Consulting Services. For more information, please contact
Keith Springer at 916-925-8900 or Keith@KeithSpringer.com
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