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You Can Use Treasuries Bank on Fed Keeping Low Rates
Reuters
Wednesday, January 28, 2004; 11:12 AM By
Wayne Cole NEW YORK (Reuters) - Treasury prices veered higher once more
on Wednesday as seemingly soft U.S. economic data comforted bond investors hoping
for a renewed commitment to low interest rates from the Federal Reserve.
Figures on new home sales and durable goods orders came in below analysts'
forecasts, supporting expectations the Fed will make only minor changes to its
policy statement when it wraps up a two-day meeting around 2.15 p.m. (1915 GMT).
"Our expectation is that their announcement will differ insignificantly
-- if at all -- from the previous FOMC meeting statement," said Tom Girard is
a senior portfolio manager at Weiss, Peck & Greer, an investment management
firm with about $19 billion under management. Still, there were fears the
Fed could spring a surprise and change the wording of its statement to be more
upbeat on the economy, perhaps even dropping the reference to a "considerable
period." It is well known that some board members never liked the commitment
and a Fed task force has been studying ways to improve its communication with
the markets. "There's some talk the Fed could revamp the whole thing, drop
the timeline and the reference to inflation and growth risks," said one worried
trader at a U.S. primary dealer. "You would think they'd flag such a big
change beforehand but you never know with these guys," he added. Thus in
the Treasury market, those who had sold Treasuries in anticipation of a strong
reports scrambled to cover their short positions. But few were brave enough to
buy bonds outright given even a small chance of a Fed surprise. The benchmark
10-year note recouped its early gains to be 5/32 firmer, nudging yields down to
4.07 percent from 4.09 percent late on Tuesday. The 30-year bond gained
1/32 in price, leaving its yield at 4.94 percent. Five-year notes rose
3/32 to yield 3.03 percent, down from 3.05 percent. The two-year added 1/32, trimming
its yield to 1.64 percent from 1.65 percent. Eurodollar futures <0#ED:>,
one of the best guides to market thinking on official interest rates, ticked higher
after the data. In recent weeks the market has sharply reduced the risk of a rate
hike in the first half of the year and now sees no move until September. The
market first rallied after U.S. orders for durable goods came in unchanged in
December when analysts had looked for a 2.0 percent gain. The flat outcome was
a particular disappointment to economic bulls as they had been counting on a bounce
from November's 2.3 percent dip. Housing figures were also soft, at least
on the surface, with new home sales dipping to an annual 1.06 million rate when
analysts had expected a rise to 1.1 million. However, sales for November and October
were revised higher, so that sales for the quarter as a whole were every bit as
strong as thought. Continue with:
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