By Cynthia Lin
Treasurys suffered their biggest one-day hit in three weeks Thursday as investors opted for riskier assets, heartened by upbeat U.S. economic reports and a bold new plan by European officials to combat their region's debt crisis.
A combination of improved U.S. labor-market signals and the announcement of the long-awaited European Central Bank bond-buying program dimmed the appeal of safe-but-low-paying Treasurys. Appetite for less-conservative investments improved, lifting European bank stocks, U.S. equities and Spanish and Italian debt.
The Treasurys market slid through most of the session, bringing 10-year note prices down 23/32 by late-afternoon trading. Its yield rose about 0.08 percentage point to 1.673%, the largest single-day jump since August 15.
The 30-year bond lost 1 28/32 to yield 2.798%, while two-year notes shed 1/32 to yield 0.262%. Bond yields rise when prices fall.
"Whenever there's a whiff that the world's a little more stable than it was before, you'll see an exodus from Treasurys like this," said Brian Weisman, money manager and president of Columbia Asset Management, who says the main purpose U.S. government bonds play in portfolios is to safeguard cash.
Largely living up to expectations, ECB President Mario Draghi delivered details of the central bank's plan, called Outright Monetary Transactions, or OMT. The ECB will buy bonds maturing in one to three years issued by distressed governments and won't claim seniority over private bondholders.
But like many other bond-market participants, Mr. Weisman warns that there's still plenty of work ahead for euro-zone officials, who face implementing the still-divisive bond-buying program and the economic slowdown that comes with stricter austerity. Already, German officials voiced concerns Thursday that the program undermines incentives for debt-stricken members to reform.
"Don't depend on the OMT as a cure-all for what ails continental Europe," said Janney Montgomery chief fixed-income strategist Guy LeBas. "It is not...designed to rescue EU sovereigns, but rather to ensure that the deterioration of sovereign credit quality doesn't result in a sharp drop in economic activity."
Despite being referred to as a Band-Aid to the euro zone's crisis, investors do acknowledge that it's a step in the right direction and buys its governments some time to get their finances in order.
The policy announcement helped lift interest in riskier euro-zone bonds. Spanish 10-year debt yields fell nearly 0.4 percentage point to 5.999%, while 10-year Italian yields fell 0.22 percentage point to 5.211%.
In the U.S., Automatic Data Processing Inc. reported 201,000 jobs were added last month, topping expectations for 145,000. Separately, the number of American workers filing for jobless benefits fell for the first time in four weeks. The country's service sector improved as well, with the Institute for Supply Management's nonmanufacturing index coming in at 53.7 for August, from 52.6 in July.
What's important to investors at this point is how these indicators factor into the Federal Reserve's willingness to provide more cheap-money stimulus as its policy-setting board gets set to meet Sept. 12-13. The biggest influence will come from Friday's nonfarm payrolls report, expected to show 125,000 jobs created last month.
U.S. Swap Spreads Mixed The U.S. two-year swap spread, which measures the difference between the two-year swap rate and two-year Treasury yield and is a main gauge of credit risks, was 0.25 basis point tighter at 16.5 basis points. The 10-year swap spread was 0.75 basis point wider at 10.5 basis points.
COUPON ISSUE PRICE CHANGE YIELD CHANGE 1/4% 2-year 99 31/32 dn 1/32 0.262% +2.4BP 1/4% 3-year 99 23/32 dn 3/32 0.344% +3.5BP 5/8% 5-year 99 24/32 dn 8/32 0.675% +5.5BP 1% 7-year 99 7/32 dn 16/32 1.117% +7.5BP 1 5/8% 10-year 99 18/32 dn 23/32 1.673% +7.9BP 2 3/4% 30-year 99 1/32 dn 1 28/32 2.798% +9.3BP 2-10-Yr Yield Spread: 140.7BPS v 135.6BPS Source: Tradeweb
Write to Cynthia Lin at [email protected]
Treasurys suffered their biggest one-day hit in three weeks Thursday as investors opted for riskier assets, heartened by upbeat U.S. economic reports and a bold new plan by European officials to combat their region's debt crisis.
A combination of improved U.S. labor-market signals and the announcement of the long-awaited European Central Bank bond-buying program dimmed the appeal of safe-but-low-paying Treasurys. Appetite for less-conservative investments improved, lifting European bank stocks, U.S. equities and Spanish and Italian debt.
The Treasurys market slid through most of the session, bringing 10-year note prices down 23/32 by late-afternoon trading. Its yield rose about 0.08 percentage point to 1.673%, the largest single-day jump since August 15.
The 30-year bond lost 1 28/32 to yield 2.798%, while two-year notes shed 1/32 to yield 0.262%. Bond yields rise when prices fall.
"Whenever there's a whiff that the world's a little more stable than it was before, you'll see an exodus from Treasurys like this," said Brian Weisman, money manager and president of Columbia Asset Management, who says the main purpose U.S. government bonds play in portfolios is to safeguard cash.
Largely living up to expectations, ECB President Mario Draghi delivered details of the central bank's plan, called Outright Monetary Transactions, or OMT. The ECB will buy bonds maturing in one to three years issued by distressed governments and won't claim seniority over private bondholders.
But like many other bond-market participants, Mr. Weisman warns that there's still plenty of work ahead for euro-zone officials, who face implementing the still-divisive bond-buying program and the economic slowdown that comes with stricter austerity. Already, German officials voiced concerns Thursday that the program undermines incentives for debt-stricken members to reform.
"Don't depend on the OMT as a cure-all for what ails continental Europe," said Janney Montgomery chief fixed-income strategist Guy LeBas. "It is not...designed to rescue EU sovereigns, but rather to ensure that the deterioration of sovereign credit quality doesn't result in a sharp drop in economic activity."
Despite being referred to as a Band-Aid to the euro zone's crisis, investors do acknowledge that it's a step in the right direction and buys its governments some time to get their finances in order.
The policy announcement helped lift interest in riskier euro-zone bonds. Spanish 10-year debt yields fell nearly 0.4 percentage point to 5.999%, while 10-year Italian yields fell 0.22 percentage point to 5.211%.
In the U.S., Automatic Data Processing Inc. reported 201,000 jobs were added last month, topping expectations for 145,000. Separately, the number of American workers filing for jobless benefits fell for the first time in four weeks. The country's service sector improved as well, with the Institute for Supply Management's nonmanufacturing index coming in at 53.7 for August, from 52.6 in July.
What's important to investors at this point is how these indicators factor into the Federal Reserve's willingness to provide more cheap-money stimulus as its policy-setting board gets set to meet Sept. 12-13. The biggest influence will come from Friday's nonfarm payrolls report, expected to show 125,000 jobs created last month.
U.S. Swap Spreads Mixed The U.S. two-year swap spread, which measures the difference between the two-year swap rate and two-year Treasury yield and is a main gauge of credit risks, was 0.25 basis point tighter at 16.5 basis points. The 10-year swap spread was 0.75 basis point wider at 10.5 basis points.
COUPON ISSUE PRICE CHANGE YIELD CHANGE 1/4% 2-year 99 31/32 dn 1/32 0.262% +2.4BP 1/4% 3-year 99 23/32 dn 3/32 0.344% +3.5BP 5/8% 5-year 99 24/32 dn 8/32 0.675% +5.5BP 1% 7-year 99 7/32 dn 16/32 1.117% +7.5BP 1 5/8% 10-year 99 18/32 dn 23/32 1.673% +7.9BP 2 3/4% 30-year 99 1/32 dn 1 28/32 2.798% +9.3BP 2-10-Yr Yield Spread: 140.7BPS v 135.6BPS Source: Tradeweb
Write to Cynthia Lin at [email protected]