US Treasuries climb as stocks sag

23 Aug, 2006

US Treasury prices rose in thin trade on Monday as investors switched from equities amid fresh concerns over Iran's nuclear program, briefly pushing the yield on the key 10-year notes to its lowest level in nearly five months.
Government bonds remained supported by views that the Federal Reserve would likely not raise interest rates again in the near-term in the wake of last week's benign inflation and consumer sentiment data, analysts said. There were no data due on Monday.
"It's pretty tepid. There is a little bit of concern about the Iran deadline tomorrow," said Bill Hornbarger, chief fixed-income strategist at AG Edwards & Sons in St Louis. "Stocks are down a bit. I don't want to read too much into it. The ranges have been pretty tight."
Iran's supreme leader, Ayatollah Ali Khamenei, said on Monday the Islamic republic would press on with its nuclear work. Iran had said it would respond formally by Tuesday to Western incentives to halt nuclear enrichment.
The United Nations Security Council has demanded that Iran halt its nuclear work by a second deadline of August 31, raising the prospect of punitive action by the UN.
The benchmark 10-year note rose 6/32 in price for a yield of 4.82 percent, after earlier dipping to 4.819 percent, the lowest level since March 30. Yields were 3 basis points lower on late Friday's levels.
Bond prices move inversely to yields. Analysts said yields were unlikely to fall further, given last weeks' rally. The yield on the 10-year note dropped 14 basis points last week.
"Technically the market is in very positive shape, however we're not recommending getting involved at these levels," said Thomas di Galoma, head of US Treasury sales and trading for Jefferies & Co in New York. "We're coming up against a very critical support level for the market and I don't think we can go much further."
US stocks fell, pressured by a rise in oil prices ahead of the Iranian deadline and disappointing earnings from housing bellwether Lowe's Cos. Inc.
Lowe's, the second-largest home improvement chain behind Home Depot Inc, cut its forecast for same-store sales growth. It also reported second-quarter earnings that fell short of analysts' expectations. In a relatively empty calendar week, analysts reckon the Treasury market will probably start paying more attention to technical charts.
The market will also be watching speeches by various Fed officials this week, culminating in one from Chairman Ben Bernanke for a fresh perspective on the central bank's views on inflation after last week's tame data. Analysts expect the US economy to cool enough to prompt a Federal Reserve rate cut in the second half of next year, a Reuters poll showed.
Late on Monday, US interest rate futures showed a 12 percent chance that the Fed would hike rates by 25 basis points in September, after leaving the fed funds rate at 5.25 percent this month. It had raised interest rates 17 times over the past two-years. The market will also focus on housing and durable goods data on Wednesday and Thursday, for further signs of an economic slowdown.
The 5-year note was up 2/32 in price to yield 4.77 percent compared with 4.79 percent late on Friday. The 30-year bond was up 10/32 in price to yield 4.96 percent versus 4.98 percent late on Friday.

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