[Excerpt: Rising energy and commodity prices combined with the prospect that central banks will raise their benchmark interest rates ``has pushed us through a fairly significant technical level'' in terms of yields, said Kevin Cronin, chief investment officer for fixed income at Putnam Investments in Boston, which manages $66 billion of bonds.]
http://www.bloomberg.com/apps/news?pid=10000087&sid=aej4O3RYN.94&refer=top_world_news Last Updated: March 9, 2005 11:45 EST U.S. 10-Year Treasury Yield Surges to Highest Since August March 9 (Bloomberg) -- U.S. 10-year Treasuries fell, pushing yields to the highest since August, as oil and gasoline prices near record highs fanned concern inflation will accelerate. Demand for government debt waned for a second day on speculation rising consumer prices will erode returns on fixed- income assets. Declines accelerated as the yield rose above 4.42 percent, the top of its seven-month trading range. The government today starts selling $24 billion of five- and 10-year notes. Rising energy and commodity prices combined with the prospect that central banks will raise their benchmark interest rates ``has pushed us through a fairly significant technical level'' in terms of yields, said Kevin Cronin, chief investment officer for fixed income at Putnam Investments in Boston, which manages $66 billion of bonds. The benchmark 4 percent note due in February 2015 declined about 1/2, or $5 per $1,000 face amount, to 96 11/32 at 11:35 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The yield rose 6 basis points, or 0.06 percentage point, to 4.46 percent, and reached as high as 4.48 percent. The low end of the yield's trading range since July is 3.93 percent, in October. Ten-year yields probably will range between 4.38 percent and 4.63 percent in coming months, and rise to 5 percent by year-end, Cronin said. ``We broke through the 4.42 level in the 10-year note, which is technically a very negative event, and it makes people very nervous,'' said James Caron, interest-rate strategist in New York at Merrill Lynch & Co., the world's largest securities firm by capital. ``Nobody would buy at that level knowing that everyone's going to freak out about it.'' Gains Wiped Out The yield reached 4.42 percent on Dec. 2 before falling back, and did it again on March. 4. The two-day rise in the yield is 15 basis points, the most since September. ``If you want to buy, why not let the market run'' its course and wait until the yield reaches 4.50 percent or 4.55 percent, where Merrill Lynch expects there will be demand, said Caron. The firm is among the 22 primary U.S government securities dealers that trade with the Federal Reserve's New York branch. Today's declines wiped out all of the 10-year note's gain from March 4, when a Labor Department report showing average hourly earnings was unchanged in February allayed concern about faster inflation. The note rose more than 1/2 of a point that day, the most in a month. ``We have had a bit of a technical meltdown that makes Friday's move look very much like short-covering,'' or buying to reverse bets on lower prices, rather than to bet on additional gains, said David Ader, an interest-rate strategist at RBS Greenwich Capital in Greenwich, Connecticut, a primary dealer. Oil and Gas On the New York Mercantile Exchange, crude for April reached $55.10, less than $1 from its October record of $55.67. Prices are up about 50 percent from a year ago. Gasoline for April delivery, which yesterday closed at a record $1.5353 a gallon after touching $1.5495, rose to $1.5480. Treasuries fell yesterday as commodity prices rose. The decline in the note was the biggest in more than a week, driving the yield up 8 basis points, and came as the Reuters-CRB index of 17 commodities including oil, wheat and metals rose to the highest since January 1981. ``Everybody is focusing on it now,'' Peter Loftus, who manages $1.4 billion of debt at HSBC Bank USA in New York, said of the potential for commodities to spark inflation. Larger-than-forecast increases in producer and consumer prices in the past month boosted speculation companies are beginning to pass them along to consumers after absorbing higher materials prices for the past three years, Debt Auctions Treasuries also fell as traders sold in order to have the capacity to buy in this week's auctions, said Ader of RBS. The government will auction $15 billion of five-year notes today and $9 billion of 10-year notes tomorrow. The current five-year note, a 3 1/2 percent security maturing in February 2010, declined almost 1/4 to 97 11/32. The yield increased 4 basis points to 4.09 percent. The yield earlier reached 4.12 percent, the highest since 2002. The new five-year notes were bid to yield 4.11 percent in when-issued trading, suggesting they may be sold at the highest yield since May 2002. The when-issued system allows trading in government bonds before the securities are sold. Bids are due by 1 p.m. New York time. Growth Forecast Rising commodities prices isn't keeping economists from boosting their forecasts. The U.S. economy will probably expand at a faster rate in the first quarter than previously estimated because of higher company spending on plant and equipment, a Bloomberg News survey of 64 economists found. The economy is projected to expand at a 3.8 percent pace this year, according to the median estimate of the survey, which was conducted March 1-8. Last month, economists forecast 3.6 percent growth rate. The economy expanded 3.8 percent in the fourth quarter. The 10-year note's yield probably will rise to 4.50 percent by the end of June and to 4.90 percent by year-end, according to survey. Last month, the median forecast was for a 5 percent 10- year yield at year-end. Michael Moskow of the Fed's Chicago branch, who votes on interest rates this year, will speak on the economic outlook today. He is slated to start speaking at the Investment Analysts Society of Chicago at 12:30 p.m. local time. At 2 p.m., the Fed releases its latest ``beige book' survey of economic conditions. Fed policy makers this month may drop their commitment to lift the federal funds rate at a ``measured'' pace in favor of more ``flexible'' and ``hawkish'' language, which may push debt yields higher, John Herrmann, director of economic commentary at Cantor Viewpoint, said in a research note yesterday. Cantor's prediction departs from the median forecast of 66 economists surveyed by Bloomberg News between March 1 and 8, which was that the Fed will stick to its ``measured'' pace language at its next meeting on March 22. Interest-Rate Futures Investors this week have increased expectations for additional increases in the Fed's benchmark interest rate, which it has raised six times since June. Expectations for what target for the overnight lending rate will be at year-end are at their highest since June as measured by the yield on the December Eurodollar futures contract. In June the 10-year note's yield averaged 4.72 percent. The yield on December Eurodollar futures contracts rose to about 4.07 percent and is up from about 3.70 percent at the beginning of February. The futures settle at a three-month lending rate that has averaged 21 basis points above the Fed's target over the past 10 years. Conundrum The 10-year yield is up from 4.10 percent on Feb. 15, a day before Fed Chairman Alan Greenspan in the text of his semiannual testimony to Congress described a drop in the yield since the Fed started raising rates in June a ``conundrum'' that may turn out to be an ``aberration.'' ``Greenspan's comments are still weighing on the market,'' said Gerald Lucas, chief Treasury and agency strategist at Banc of America Securities LLC in New York. ``It's changed the whole market psychology.'' Treasury inflation-protected securities, or TIPS, are outperforming regular Treasury notes for a third straight day. TIPS pay interest at lower rates than regular Treasuries on a principal amount that's indexed to consumer prices. Regular 10-year note yields exceed 10-year TIPS yields by 2.73 percentage points, the most since June and compared with about 2.43 percentage points last month. The yield gap between the two securities represents the average expected inflation rate over the life of the securities. Some traders said a report out of Germany today showing industrial production in that country rose the most in almost a decade in January contributed to the decline in Treasuries. To contact the reporter on this story: Elizabeth Stanton in New York at [EMAIL PROTECTED] To contact the editor responsible for this story: Robert Burgess at [EMAIL PROTECTED] enditem ------------------------ Yahoo! Groups Sponsor --------------------~--> Take a look at donorschoose.org, an excellent charitable web site for anyone who cares about public education! http://us.click.yahoo.com/_OLuKD/8WnJAA/cUmLAA/TySplB/TM --------------------------------------------------------------------~-> -------------------------- Want to discuss this topic? Head on over to our discussion list, [EMAIL PROTECTED] -------------------------- Brooks Isoldi, editor [EMAIL PROTECTED] http://www.intellnet.org Post message: [email protected] Subscribe: [EMAIL PROTECTED] Unsubscribe: [EMAIL PROTECTED] *** FAIR USE NOTICE. This message contains copyrighted material whose use has not been specifically authorized by the copyright owner. OSINT, as a part of The Intelligence Network, is making it available without profit to OSINT YahooGroups members who have expressed a prior interest in receiving the included information in their efforts to advance the understanding of intelligence and law enforcement organizations, their activities, methods, techniques, human rights, civil liberties, social justice and other intelligence related issues, for non-profit research and educational purposes only. We believe that this constitutes a 'fair use' of the copyrighted material as provided for in section 107 of the U.S. Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond 'fair use,' you must obtain permission from the copyright owner. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/osint/ <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
