Stocks, Bonds & Forex Trading
Source: money.cnn.com

January 26, 2009: 03:52 PM ET

Treasury prices fell Monday, pushing yields to the highest in weeks, as the government began a slew of debt auctions this week, ranging from short-term bills to $8 billion in 20-year inflation-indexed securities.

Ten-year note yields (UST10Y) rose 4 basis points, or 0.04%, to 2.66%, the highest since Dec. 10. Bond prices move inversely to their yields.

The two-year note (UST2YR) yields were little changed at 0.83%, the highest since Jan. 2.

"We see bond markets under pressure as actual and planned issuances surge," especially as foreign official buyers have less ability to invest in U.S. debt, said analysts at UBS Securities.

The government sold the Treasury Inflation Protected Securities, known as TIPS, to yield 2.500%.

TIPS pay investors a coupon plus the actual rate of inflation as measured by the government's consumer price index.

The most recently issued 20-year TIPS, maturing in April 2028, carry a yield 1.26 percentage points below regular Treasurys maturing around the same time, according to Barclays Capital. That gap implies that investors expect inflation to average around 1.26% over the life of the debt, which Barclays considers too low, making the securities a good buy at these levels.

The TIPS received bids for $1.92 for every dollar available, close to the average in the last four sales of the securities.

Indirect bidders, a class of investors that includes foreign central banks, bought 54% of the sale, also near the average of the last four.

Earlier, the Treasury sold $29 billion in three-month bills at a rate of 0.152% and $28 billion in six-month bills at a rate of 0.350%.

The Treasury Department also will put record amounts of two- and five-year notes up for bid, reducing investors' willingness to buy higher amounts at yields already near the lowest ever.

Home sales, job losses

Treasurys stayed lower after the National Association of Realtors said sales of existing homes rose 6.5% in December to a seasonally adjusted annualized rate of 4.74 million. Economists surveyed by MarketWatch predicted the pace would fall to 4.36 million.

The Conference Board's index of leading indicators rose 0.3% last month, helped by an increase in the supply of money. It fell 0.4% in November.

Treasurys briefly gained support as companies in several industries announced plans to slash jobs.

The widespread job cuts may work against the bond market though, if it leads the government to increase its already mammoth stimulus proposal.

Construction-equipment maker Caterpillar (CAT) said it would cut 20,000 jobs, and Home Depot (HD) said it would cut its workforce by about 7,000 jobs.

Sprint Nextel (US-S) it will eliminate 8,000 jobs in the first three months of 2009.

Longer-term "bonds are off on the continuing realization of stimulus funded by supply" of more debt, said Andrew Brenner, co-head of structured products and emerging markets at MF Global.

Also of concern to bondholders, Timothy Geithner is expected to be confirmed as Treasury Secretary on Monday, opening up the possibility of more details on the Obama Administration's stimulus proposal.

Possibly a threat to bond investors "will be the formal approval of Geithner and his coming forth with more details on the stimulus package, for example homeowners relief, which could add to deficit concerns and, imagine, boost equity market confidence," said David Ader, U.S. government bond strategist at RBS Greenwich Capital.

Also on tap this week is the Federal Reserve's policy meeting. Analysts don't expect any changes to the central banks' target overnight interest rate between banks, already dropped to a range of zero to 0.25% last month.

Policy makers are unlikely to say much different after they meet on Tuesday and Wednesday, having already affirmed they are ready to pull out all the stops to help the economy and stabilize financial markets.

(END) Dow Jones Newswires
01-26-09 1552ET
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