The price of Treasuries dropped on Wednesday as an increasing supply of government debt has pushed yields up from their historic lows. Yesterday’s $30 billion auction of 3 year notes will be followed by a $16 billion auction of the 10 year maturity today, including an $8 billion TIP auction brings the week’s total to $54 billion. Although the weaker than expected ADP Employment report brought down equity prices (the Dow dropped 245 points), it did little to boost demand for Treasuries. At the end of the day it was the belief that the government will continue to flood the market with new debt in order to finance its ongoing obligations that made Treasury prices decline. The 5 year note dropped 2/32s to yield 1.66% while the benchmark 10 year note lost 14/32s to yield 2.49%. The long bond fell 30/32s at the end of the day to yield 3.04%.
Yesterday’s drop in Treasury prices can also be attributed to investors beginning to move to other fixed income products such as Corporates and Preferreds. These products, which have been trading at historical spreads over Treasuries, have experienced stronger demand in the past few weeks. Consequently we have seen spreads tighten across those two asset classes, the riskier the asset, the sharpest the Month over Month change. For example the yield on the benchmark 10 year industrial corporate has dropped 19% from a month ago. Moving down the capital structure the average price of Trust Preferreds have increased by 19.12% from 12/08/08 while Preferred Equity prices have risen 30.89% from the same period.
Market participants will focus today on the Initial Jobless Claims report released this morning as well as the President Elect Obama’s scheduled speech on the economy and his proposed stimulus plan. The speech will be held at George Mason University in Fairfax, Virginia, at 10 a.m. CST. The 10-year Treasury has reversed yesterday’s course gaining 11/32s yielding 2.46% while the 30-year Treasury has gained 08/32s this morning to yield 3.03%. For the record, the Department of Labor released its weekly Initial Jobless Claims report in which claims dropped 24,000 from the previous week to 467,000, a number sharply lower than expected as analysts had anticipated a 545,000 reading for the week. Continuing claims, however, increased 101,000 to 4.611 million. The less volatile 4-week average number of initial claims was also lower than the previous period reporting a decrease of 27,000 from the previous week to 525,750. Although this report is not part of tomorrow’s December Employment report (as it is for the first week of 2009) it will still set the tone of what might be expected going forward.
Yesterday’s drop in Treasury prices can also be attributed to investors beginning to move to other fixed income products such as Corporates and Preferreds. These products, which have been trading at historical spreads over Treasuries, have experienced stronger demand in the past few weeks. Consequently we have seen spreads tighten across those two asset classes, the riskier the asset, the sharpest the Month over Month change. For example the yield on the benchmark 10 year industrial corporate has dropped 19% from a month ago. Moving down the capital structure the average price of Trust Preferreds have increased by 19.12% from 12/08/08 while Preferred Equity prices have risen 30.89% from the same period.
Market participants will focus today on the Initial Jobless Claims report released this morning as well as the President Elect Obama’s scheduled speech on the economy and his proposed stimulus plan. The speech will be held at George Mason University in Fairfax, Virginia, at 10 a.m. CST. The 10-year Treasury has reversed yesterday’s course gaining 11/32s yielding 2.46% while the 30-year Treasury has gained 08/32s this morning to yield 3.03%. For the record, the Department of Labor released its weekly Initial Jobless Claims report in which claims dropped 24,000 from the previous week to 467,000, a number sharply lower than expected as analysts had anticipated a 545,000 reading for the week. Continuing claims, however, increased 101,000 to 4.611 million. The less volatile 4-week average number of initial claims was also lower than the previous period reporting a decrease of 27,000 from the previous week to 525,750. Although this report is not part of tomorrow’s December Employment report (as it is for the first week of 2009) it will still set the tone of what might be expected going forward.
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