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		Home Page Mortgage News You Can Use Treasuries Higher on Hopes of Demand By Pedro Nicolaci da Costa, 2/9/2004 NEW YORK (Reuters) - U.S. Treasury prices climbed on Monday as investors hoped that Asian central banks will be big buyers of this week's $56 billion refunding. Since the G7 statement over the weekend warned against "excess volatility" in exchange rates, Japanese officials have made it clear that they would continue their efforts to stem the recent decline in the U.S. dollar. Since much of this intervention money tends to make its way into the Treasury market, the statements gave traders the hope that there would be plenty of demand from the Bank of Japan for this week's three-part auction. "There's a sense that the G7 meeting sort of supports intervention in the market so you could see some good foreign flows into Treasuries," said David Ging, fixed-income strategist at Credit Suisse First Boston. Investors continued reaction to last week's disappointing jobs tally also boosted bonds as traders wondered whether the Federal Reserve would adjust interest rates before a nascent recovery in employment appeared to find a firmer footing. The economy generated a mere 112,000 jobs in January, well short of expectations and less than the amount needed to simply absorb new entrants into the labor force. The market was also wary of making any sharp moves ahead of Federal Reserve Chairman Greenspan's testimonies to the Senate on Wednesday and the House of Representatives on Thursday. Analysts will be looking for some sort of clarification regarding the Fed's change of wording on the timing of a potential interest rate hike. In its latest statement in January, the Fed switched from promising to keep rates low for "a considerable period" to more vaguely vowing to be "patient in removing policy accommodation." As they waited for Greenspan, traders pushed the benchmark 10-year note <US10YT=RR> 3/32 higher in price for a yield of 4.07 percent from 4.08 percent. Yields stood at 4.18 percent before Friday's jobs report. The five-year note <US5YT=RR> added 3/32, compressing yields to 3.06 percent from 3.09 percent. Thirty-year bonds <US30YT=RR> were up 2/32 to yield 4.92 percent. Two-year notes <US2YT=RR>, the maturity most sensitive to thinking on official rates, dipped to 1.75 percent having backtracked from 1.84 percent on Friday as the market trimmed the risk of a rate hike any time soon. TRICKY TIMING Greenspan's appearance this time carries an extra layer of risk for the market in that he will be talking smack in the middle of the Treasury's quarterly refunding. On Tuesday, Treasury auctions $24 billion in three-year paper, followed by $16 billion of five-year notes the day after and $16 billion of 10-year's on Thursday. Traders are feeling a little more comfortable about the sale after Friday's soft jobs numbers offered some reassurance that the Fed would not be raising rates soon. Still, surveys of fund managers show they remain bearish on bonds given the certainty that rates will have to rise at some point and are also reluctant to add to portfolio duration by buying longer-dated paper. Their bearishness is one reason why the appetite of foreign central banks has become so important to the market. In their efforts to retard export-damaging gains in their currencies, Asian central banks have been huge buyers of dollars, particularly in the last 12 months with much of that money going into Treasuries. The latest figures show Asian foreign exchange reserves topped $2 trillion for the first time in January. Much of that was due to massive intervention by Japan which bought around $65 billion last month alone. There are also signs it is ready to spend a lot more with the Japanese parliament on Monday granting the government another 21 trillion yen in intervention funds.   Back to Original Article: Mortgage News You Can Use
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