The US government debt market should hold steady next week on views that the economy is growing at a moderate pace with the aid of monetary and fiscal stimuli, with little in the way of economic data that would alter that perception.
The recovery is being held back by high unemployment and a hefty fiscal deficit, but the world's largest economy has not generated much inflation since the last recession ended more than a year ago. The bulk of upcoming US economic reports will provide snapshots on the housing market, which should remain anemic due to weak labour conditions and overhanging supply from the housing boom.
"This is not where we are going to see stimulus to the economy," Jerry Webman, senior investment officer and chief economist at OppenheimerFunds in New York, said of the housing sector. Given this prevalent view, Treasury yields should trade within their current range.
"The market has to put in some time with these yields," said Tom Connor, president and chief investment officer at Pierpont Securities in Stamford, Connecticut. Benchmark Treasury yields have settled in a tight range since a steep two-month sell-off that drove them to their highest in seven months in mid-December.
The 10-year yield finished at 3.33 percent on Friday, up 3 basis points on the day and flat on the week. Moreover, the scarcity of coupon-bearing supply and lingering anxiety over the sovereign debt problems in Europe should keep a lid on Treasury yields, analysts said.
After selling $66 billion in coupon supply this week, the US Treasury Department will auction $13 billion in 10-year inflation bonds (TIPS) next Thursday, the biggest offering ever of such securities. On a technical basis, falling market volatility and modest chart recovery in Treasury futures hint yields could head lower, with 3.25 percent as a target for the 10-year yield.
On the other hand, US government debt is not a compelling asset for investors who hold views of moderate growth. They see higher returns this year on stocks, corporate bonds and other risky assets. The Treasuries market "doesn't represent a lot of value," OppenheimerFunds' Webman said. The Standard & Poor's 500 index was poised for a seventh consecutive week of gains on optimism about corporate earnings. The US bond market will be closed on Monday in observance of the Martin Luther King holiday.
Comments
Comments are closed.