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U.S. Treasuries slip before housing data
Wed Aug 23, 2006
By Zubin Jelveh
NEW YORK, Aug 23 (Reuters) - U.S. government debt prices were slightly lower on Wednesday as investors awaited a home sales report that could provide further evidence the economy is slowing.
The median forecast for July existing home sales among economists polled by Reuters was for an annual rate of 6.55 million units, down about 1 percent from June.
If the data falls in line with forecasts, bonds are likely to benefit. U.S. Treasuries have rallied over the past 6 weeks on the perception that a slowdown in the economy and subsiding inflationary pressures mean U.S. interest rates might have peaked, keeping the Federal Reserve at bay.
"I think few people in the market are willing to do much ahead of housing data later today and (Fed Chairman Ben) Bernanke's speech on Friday," said Nick Stamenkovic at RIA Capital Markets in Edinburgh.
Other housing data on Wednesday showed U.S. mortgage applications rose for a third straight week as falling interest rates prompted homeowners to refinance loans, according to the Mortgage Bankers Association. For more details click on [ID:nN23315781].
The two-year Treasury note <US2YT> was down 1/32 in price to yield 4.89 percent, compared with 4.87 percent late on Tuesday. Bond prices and yields move inversely.
The benchmark 10-year note <US10YT> down 2/32 in price to yield 4.82 percent versus 4.81 percent late on Tuesday.
The inversion between 2-year and 10-year notes hit a one-month high following a speech on Tuesday by Federal Reserve Bank of Chicago President Michael Moskow.
Moskow, a voting Federal Open Market Committee member in 2007 and known to be more vociferous about fighting inflation than other Fed members, said more rate hikes could be required to bring inflation back to the comfort zone.
U.S. interest rate futures, however, did not change their perception of whether the Fed would hike rates at its next meeting in September, keeping the probability at 18 percent.
INDEX EXTENSION
Long-term government debt may get support as investors adjust their portfolios to changes in U.S. bond indexes following the Treasury Department's quarterly refunding this month.
"The Treasury index is expected to lengthen a significant 0.21 years at the end of the month," said BNP Paribas in a research note. "This is the largest extension since November 2002 and, with that, noticeably larger than the average index extension for August quarterly refundings (since 1988) of about 0.18 years."
In early August, the Treasury Department auctioned $44 billion in 3-year and 10-year notes, and 30-year bonds.
A duration extension may increase bond purchases by investors who keep portfolio durations on track with changes in an index.
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