Treasurys Slide on Lower Oil Prices, Weaker Dollar
Ramez Mikdashi. Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 28, 2004. pg. C.4
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Abstract (Document Summary)
The market also saw some selling based on technicals, or chart patterns. "We broke last week's
lows [4.22% on the 10 year-note], which triggered follow-through selling from trend-following
accounts," said Jason Evans, co-head of government bond trading at Deutsche Bank in New York.
"The theme of nonfarm payrolls mattered the most for intermediate and long-term yield movements
when 2004 began and as the year winds down," said Gerald Lucas, senior agency and government
strategist at Banc of America Securities. Of the 12 payroll reports this year, eight arrived below the
market consensus figure, Mr. Lucas noted.
S&P said the company's ratings reflect the risks of operating in Indonesia and its limited operating
diversity, offset partly by ownership of one of the lowest-cost copper operations in the world, a
significant reserve base and strong free cash-flow generation. It said the actions stem from a recent
upgrade of Indonesia's sovereign ratings and S&P's assessment that political and economic risks,
although still considerable, have improved somewhat, which increases stability in FreeportMcMoRan's operating environment.
Full Text (851 words)
Copyright (c) 2004, Dow Jones & Company Inc. Reproduced with permission of copyright owner.
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Dow Jones Newswires
NEW YORK -- Treasurys fell sharply as a mix of lower oil prices, a weaker dollar, profit-taking and
technically oriented trades had outsized impact on a quiet market.
The price declines pushed the yield of the benchmark 10-year note -- which moves inversely to its
price -- to the highest since early December. But analysts stressed that the move was exaggerated
as the absence of many investors left the market more prone to volatility.
"Markets are thin . . . [dealers] are not willing to hold a position. It contributes to the slipperiness of
the market. No one has a strong opinion in a thin market," said Jim Caron, fixed-income strategist at
Merrill Lynch.
Moves in other markets helped spur selling in Treasurys.
Among those, February crude-oil futures fell $2.86 a barrel to $41.32. Declining energy prices are
viewed as a negative for the Treasurys market, leaving consumers with more money to spend on
other items.
In addition, the dollar weakened versus the euro and yen. The euro was quoted at $1.3615, up from
$1.3530 Friday in Canada, while the dollar fell to 103.03 yen from 103.62.
Beyond that, said Jose Mazas, interest-rate strategist at BNP Paribas in New York, some investors
were booking profits ahead of the year's end on so-called yield curve-flattening trades, which
involves buying longer-dated securities while selling shorter ones. The strategy -- which can produce
profits as longer yields drop in relation to those at the short end, was lucrative this year for many as
Federal Reserve tightening helped lift short-term rates.
The market also saw some selling based on technicals, or chart patterns. "We broke last week's
lows [4.22% on the 10 year-note], which triggered follow-through selling from trend-following
accounts," said Jason Evans, co-head of government bond trading at Deutsche Bank in New York.
Meanwhile, the Treasury announced plans to sell $24 billion in two- year notes tomorrow. But no
major economic data were released yesterday, and the calendar for the rest of the week also looks
sparse.
Tomorrow marks the release of the Conference Board's consumer- confidence measure for
December. In November, the private research group reported that consumers slightly moderated
their optimism as the index dipped to 90.5 from 92.9. The consensus forecast for December is 94.0,
according to a Dow Jones Newswires-CNBC survey of economists. The University of Michigan,
which also tracks consumer attitudes, reported last week that its sentiment index rebounded to 97.1
in December from 92.8 in the prior month. The Chicago chapter of the National Association of
Purchasing Managers Thursday will release an index of regional manufacturing activity. November
existing homes sales are due out tomorrow.
Looking ahead to next week, the focus will be on the monthly employment report, a bellwether report
that dominated trading trends in Treasurys during 2004.
"The theme of nonfarm payrolls mattered the most for intermediate and long-term yield movements
when 2004 began and as the year winds down," said Gerald Lucas, senior agency and government
strategist at Banc of America Securities. Of the 12 payroll reports this year, eight arrived below the
market consensus figure, Mr. Lucas noted.
As 2005 gets going, the influence of payrolls will remain strong. But other factors, including inflation
data, Fed policy and the performance of the dollar, "will likely matter the most as sources for rate
volatility," Mr. Lucas said.
The bond market was closed Friday ahead of the Christmas holiday. At 4 p.m. yesterday, the
benchmark 10-year note was down 20/32 point, or $6.25 per $1,000 face value, at 99 22/32. Its yield
rose to 4.295% from 4.216% Thursday. The 30-year bond was down 1 6/32 points at 107 28/32 to
yield 4.917%, up from 4.841% Thursday.
AUCTION RESULTS
Here are the details of yesterday's auction by the Treasury of 13-week and
26-week bills. All bids are awarded at a single price at the market-clearing
yield. Rates are determined by the difference between that price and the
face value.
13-Week 26-Week
Applications ................... $34,453,659,000 $30,026,180,000
Accepted bids .................. $19,000,049,000 $17,000,130,000
Accepted noncomp ............... $1,459,129,000 $1,027,580,000
Accepted frgn non .............. $527,600,000 $635,600,000
Auction price (Rate) ........... 99.437569(2.225%) 98.705778(2.560%)
Coupon equivalent .............. 2.269% 2.630%
Bids at market yield ........... 40.98% 50.30%
Cusip number ................... 912795SG7 912795SV4
Both issues are dated Dec. 30, 2004. The 13-week bills mature March 31,
2005, and the 26-week bills mature June 30, 2005.
High-Yield Bonds
Standard & Poor's raised foreign and local currency corporate credit ratings for Freeport-McMoRan
Copper & Gold Inc. to double-B-minus from single-B-plus and said the outlook is stable. It also
raised its senior unsecured debt rating for the company to single-B-plus from single-B and its
preferred rating to single-B-minus from triple-C- plus.
S&P said the company's ratings reflect the risks of operating in Indonesia and its limited operating
diversity, offset partly by ownership of one of the lowest-cost copper operations in the world, a
significant reserve base and strong free cash-flow generation. It said the actions stem from a recent
upgrade of Indonesia's sovereign ratings and S&P's assessment that political and economic risks,
although still considerable, have improved somewhat, which increases stability in FreeportMcMoRan's operating environment.