* Bonds erase gains as traders make room for Apple debt
* Earlier, intra-day yield hits lowest level since
* Fed expected to keep buying bonds, ECB expected to cut
By Ellen Freilich
NEW YORK, April 30 U.S. Treasuries erased early
gains on Tuesday in the face of a giant debt sale by Apple Inc,
leaving Treasuries prices little changed on the day.
Earlier, the benchmark 10-year Treasury yield dipped to its
lowest level since mid-December on a weaker-than-expected
manufacturing snapshot from the Chicago purchasing managers
index, along with expectations for more monetary accommodation
from the Federal Reserve and the European Central Bank.
"Month-end demand, declining eurozone inflation figures, a
record euro zone unemployment rate and a test of last Tuesday's
best levels all played a role in boosting Treasuries overnight
and in the morning," said John Canavan, fixed-income analyst at
Stone & McCarthy Research Associates in Princeton, New Jersey.
"Expectations that the ECB will have to take some kind of
action this week are also growing due to the weak data out of
Europe and the falling pace of inflation," he said, referring to
the European Central Bank's policy meeting on Thursday.
A fall in euro zone inflation to a three-year low of 1.2
percent in April and a rise in the unemployment rate to 12.1
percent in March has led investors to conclude the European
Central Bank will cut the main euro zone interest rate at its
monthly meeting by 25 basis points on Thursday to 0.50 percent
as the bloc's economy weakens further.
Treasuries gave up gains before midday, however, as
investors made room Apple Inc's six-part debt sale.
Apple has attracted more than $50 billion in orders for a
six-part debt sale expected to price later Tuesday, according to
two market sources.
The technology company is issuing three-year and five-year
fixed and floating-rate notes, as well as 10-year and 30-year
fixed-rate notes via Deutsche Bank and Goldman Sachs. The
company is expected to issue at least $15 billion in debt.
Still, participants said Treasury yields were likely to stay
low and that the yield curve would tend to flatten, narrowing
the difference between short- and long-term yields.
"Greater economic weakness out of Europe with higher levels
of unemployment and ebbing inflation - that theme is starting to
gain greater momentum," said Wilmer Stith, co-portfolio manager
of the Wilmington Broad Market Bond Fund in Baltimore, Md.
"The U.S. economy continues to slightly disappoint and in
Europe the question is whether the ECB is going to lower its
overnight rate or not. With the global quantititative easing
machine, this all suggests the yield curve will be flatter,"
Treasuries prices reached session highs at mid-morning after
after a measure of Midwest manufacturing activity reflected
contraction, contrary to expectations for expansion.
The Chicago Purchasing Management index read 49.0 in April,
below the consensus forecast of 52.5.
Of particular interest to the market before Friday's key
U.S. employment report was a drop in the Chicago Purchasing
Management employment index to 48.7 in April from 55.1 in March.
Readings below 50 point to contraction; readings above 50
point to expansion.
"The most concerning aspect was the drop in the employment
component," Stith said. "That certainly was not an encourging
sign for this Friday's payrolls report."
The government will release April U.S. employment data on
Friday with non-farm payroll growth expected to total 145,000
jobs, according to economists polled by Reuters.
In early afternoon trade, the benchmark 10-year Treasury
note was unchanged, its yield at 1.68 percent. The
yield has dropped from as high as 2.05 percent on March 8.
The Federal Reserve's policy-making committee began a
two-day meeting that will end Wednesday with a statement that
some believe could sound relatively dovish in response to
recent, weaker economic data.
"Treasury prices are higher because it's looking more and
more likely that the European Central Bank will indeed cut its
main refinancing rate on Thursday while the Federal Reserve will
stand pat on Wednesday," said Brian J. Jacobsen, chief portfolio
strategist at Wells Fargo Funds Management in Menomonee Falls,
Wisconsin. "That makes Treasuries relatively more attractive
than euro-denominated debt."
Treasuries also briefly trimmed gains after the
S&P/Case-Shiller composite index showed U.S. single-family home
prices posted their best annual rise since May 2006, climbing
1.2 percent on a seasonally adjusted basis compared to January
and topping forecasts for a 0.9 percent rise.
The Treasury sold $30 billion in four-week Treasuries bills
on Tuesday, $10 billion less than the last week. This came on
top of $9 billion in cuts in this week's three-month, six-month
and 12-month bill auctions, which were announced last week.
The declining bill issuance has helped short-dated bill
yields drop and some think declining supply could also extend to
extra demand for coupon debt.
The Fed bought $5.13 billion in notes April 30, 2017 and
December 31, 2017 on Tuesday.