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TREASURIES-Bonds plunge as debt supply worries outweigh data
May 21, 2009 / 4:50 PM / 8 years ago

TREASURIES-Bonds plunge as debt supply worries outweigh data

* Supply concerns hit bond prices

* Worry U.S. may be in same boat after S&P cuts UK outlook

* Prices weak despite host of normally bond-bullish events (Adds analyst quote, updates prices)

By Chris Reese

NEW YORK, May 21 (Reuters) - U.S. Treasuries plunged on Thursday after the government said it would sell a massive amount of new debt next week, adding to worries whether global investors can digest all the pending supply.

Bond investors were also mulling the value of U.S. debt after Standard & Poor’s cut its credit outlook on the United Kingdom to negative from stable, with some fears that huge deficits may leave the United States in the same situation.

“There is going to be a huge amount of supply to feed the deficit -- that is what is going on here,” said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey. “People are asking, if the UK is having problems like this then maybe U.S. sovereign debt is also not as solid.”

Benchmark 10-year Treasury notes US10YT=RR were trading 28/32 lower in price for a yield of 3.30 percent, marking the highest yield in nearly two weeks, from 3.20 percent late on Wednesday. The 30-year bond US30YT=RR was trading 1-29/32 lower for a yield of 4.27 percent from 4.16 percent.

The U.S. Treasury said it will sell $101 billion of new notes next week, matching the size of a record-large weekly note sale in April.

Expectations of a wave of supply has generally been weighing on bond prices so far this year, with the Treasury expected to issue about $2 trillion of debt in fiscal 2009.

Benchmark yields, which move inversely to prices, have risen about a full percentage point since early January.

The weakness came despite a host of events that normally would be bullish for bonds, including falling stocks, the Fed buying Treasuries and data hinting the U.S. recession may be far from over.

Weekly U.S. jobless claims on Thursday, while near economists’ expectations, also offered little in the way of hope for an imminent end to the recession. Data also showed manufacturing in the U.S. Mid-Atlantic region contracted more than expected in May.

The number of U.S. workers filing new claims for jobless aid fell last week, but the number of people staying on the benefits roll after drawing an initial week of aid rose by more than forecast to reach another record. [ID:nN20527102]

Investors were also still mulling minutes from the Fed’s April policy meeting, released on Wednesday, which showed the central bank cut its forecast for economic growth over the next three years, although the U.S. central bank did note there were modest improvements in the economy last month.

The jobless claims data “confirms what the Fed minutes said yesterday: this reinforces the view that we are not out of this yet,” said Lee Olver, fixed income strategist at SMH Capital in Houston.

The Philadelphia Fed said its business activity index for May was minus 22.6 compared with minus 24.4 in April. Economists had forecast a reading of minus 18. A reading below zero indicates contraction in the region’s manufacturing sector; May marked the eighth consecutive month of shrinking factory activity. [ID:nN21531804]

The Fed bought about $7.4 billion of Treasuries on Thursday. To date, the central bank has bought about $123 billion of Treasuries as part of a program to buy $300 billion of government debt over a six-month period in an effort to reduce longer-term interest rates like those on mortgages. (Additional reporting by Richard Leong; Editing by Leslie Adler)

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