US government bond prices fell on Tuesday as data on consumer confidence and existing home sales surpassed Wall Street forecasts and boosted expectations for another Federal Reserve rate hike in August.
"Treasuries sold off. The data was disappointing for the people who are looking for a concrete direction on what the Fed would do," said Michael Cheah, vice president, portfolio manager, AIG SunAmerica Asset Management in Jersey City. "These types of numbers do not convincingly argue that the Fed would pause its interest rate hikes," he added.
A well-received auction of 20-year inflation-protected Treasuries in the afternoon had little impact on prices. The housing numbers confirmed the sector is slowing, but perhaps less quickly than expected, while the Conference Board's confidence index proved remarkably resilient given high gasoline prices and uncertainty surrounding the Middle East. That could mean that the US economy is not easing quickly enough to stem inflation, analysts said.
Benchmark 10-year notes eased 5/32 in price to yield 5.07 percent, up from 5.05 percent on Monday. Two-year debt slipped 2/32 for a yield of 5.12 percent, up from 5.09 percent a day earlier.
While Tuesday's data were considered second-tier, they did seem to favour the camp of Wall Street investors who believe it is too early for the Fed to stop raising rates.
Futures markets reflected this shift, moving to indicate a 57 percent chance of an August move compared with a 46 percent chance prior to the release of the two reports. Those still holding out for a pause noted, however, that the pace of existing home sales was at its slowest since January as condominium sales tumbled. Price increases were also the weakest in 11 years.
Yet consumer confidence pointed to a brighter economic outlook, with the Conference Board's index of consumer sentiment rising unexpectedly to 106.5 in July from 105.7 in June.
It stood well below highs around 140 seen during the late 1990s Internet boom, but was also up significantly from lows near 60 set in early 2003, when the United States was preparing to invade Iraq.
Importantly for bonds, inflation expectations 12 months out according to the confidence data were steady at 5.1 percent, down significantly from highs touched in late 2005.
Also on Tuesday, a $7 billion reopening of 20-year inflation-protected securities, or TIPS, was met with strong demand but the auction only had a small impact on US government debt prices. It was the fourth such auction.
The ratio of the number of bids received to the number of bids accepted for the auction came in at 2.24, well above the 1.48 ratio in January, indicating strong demand for protection against rising prices. Indirect bidders, which include foreign central banks and fund managers, accounted for 69 percent of all bids, above the level seen in January.
A combined $36 billion of two- and five-year paper is also on tap this week. The 30-year bond was down 8/32 for a yield of 5.13 percent, up from 5.11 late Monday, while five-year notes declined 4/32 and were yielding 5.03 percent, up from 5.00 percent late on Monday.
Comments
Comments are closed.