January 09, 2008 |
|Treasurys see first decline of New Year as investors brace for major bond offerings.|
Treasury prices dropped Tuesday for the first time in 2008 as investors ventured into a recently battered stock market and readied for large corporate bond offerings.
Tuesday's losses marked the first drop in eight trading sessions for Treasurys. Since late December, economic and global worries have made investors wary of stocks and turn to the safety of government-backed securities.
However, demand for Treasurys waned a bit Tuesday as investors sought bargains in a stock market depressed by recent selloffs; the gains on Wall Street were modest, however. In addition, there are large bond offerings this week and next from General Electric Corp., Prudential Financial Inc., Duke Energy Corp, and the Mexican government.
"Most of the losses today are supply-related," said Tom di Galoma, head of Treasurys trading at Jefferies & Co Inc. "There is going to be a large amount of corporate supply and customers tend to sell Treasurys to set up for new supply."
The 10-year benchmark Treasury note fell 14/32 to 102 28/32 with a yield of 3.90 percent, up from 3.84 percent late Monday. Prices and yields move in opposite directions.
The 30-year long bond lost 21/32 to 110 1/32 with a 4.39 percent yield, up from 4.35 percent late Monday.
The 2-year note declined 4/32 to 100 26/32 with a yield of 2.82 percent, up from 2.75 percent.
Despite the selling pressure, there are a number of troubling signs about the economy, including new data confirming that the housing market remains weak. Signs of economic weakness generally spur buying of Treasurys.
The National Association of Realtors reported that sales contracts for previously owned homes fell by 2.6 percent in November. The drop contrasted unfavorably with a 0.6 percent rise in October and a Thomson/IFR projection for a 0.5 percent decline. The survey tracks contracts signed, but not executed, and the large decline indicates home sales will continue to be weak in coming months.
Merrill Lynch North America economist David Rosenberg Tuesay said he believes the United States is currently in its first month of recession, citing a rise in the unemployment rate to 5 percent last month from 4.4 percent in March of 2007.
However, a recession only takes place only when there are two consecutive quarters of economic decline as measured by the national gross domestic product. Although economists often speculate about recessions, it is the task of the National Bureau of Economic Research to determine whether there is a recession, which can only be declared in hindsight.
In another downbeat economic assessment, Bill Gross, founder of PIMCO, the world's largest bond fund, Tuesday predicted that losses in the credit default swap market this year will compound the problems caused by subprime mortgages.
Investors use credit default swaps to hedge against the risk that a company will default on its debt. If there is a sharp increase in defaults on corporate bonds this year, as Gross anticipates, investors also will have to take losses on the swap contracts, too.