NEW YORK (AP) - Treasury prices rallied Wednesday, sending yields to
multi-month lows on weaker than expected home sales data and labor reports that
raised concerns about turmoil in credit markets slowing the broader economy.
Signs of economic weakness tend to stir demand for low-risk Treasurys and
divert capital out of the stock market, which fell sharply Wednesday.
"The decline in stocks is the easily the biggest factor helping Treasurys
today," said Joel Marver, Chief Technical Analyst at Thomson IFR Markets.
Throughout the summer the bond and stock markets have moved in opposite
directions.
The benchmark 10-year Treasury note closed 19/32 higher at 102 6/32 with a
yield of 4.47 percent, its weakest level since March 14 and down from 4.56
percent at Tuesday's close.
The 30-year long bond gained 28/32 to 103 16/32 with a 4.78 percent yield,
down from 4.84 percent on Tuesday. The 2-year note rose 6/32 to 99 31/32 with a
4.02 percent yield, down from 4.12 percent.
Yields on 3-month Treasury bills ended the session at 4.28 percent, down
from 4.42 percent a day before, as the discount rate dropped 0.19 percentage
point from Thursday to 4.23 percent.
The National Association of Realtors' pending home sales index, which tracks
contracts signed but not executed, showed an unexpected 12.2 percent plunge in
July to 89.9, down sharply from 102.4 in June. According to the realtors,
mortgage commitments have been falling through and preventing closings, creating
weakness throughout the country.
New job market surveys released Wednesday forced some economists to revise
downward their estimates for payroll growth last month ahead of the Labor
Department's August employment report Friday. Some economists projected about
125,000 new jobs in both the public and private sectors were added last month,
but Wednesday's reports were less optimistic.
A survey by Automatic Data Processing Inc., which tracks private sector jobs
by monitoring corporate payrolls, said just 38,000 positions were added in
August, the smallest growth in four years. The Hudson Employment Index, which is
produced by recruiting company Hudson Highland Group Inc., showed a 6.6 points
decline to 99.2 in August.
Although the two reports are not always heavy factors in the market, the
instability seen in the credit markets in August has made investors sensitive to
any news about employment.
The Federal Reserve Beige Book survey of regional economies suggested that
volatile financial markets are not harming the rest of the economy, save
housing. "Outside of real estate, reports that the turmoil in financial markets
had affected economic activity during the survey period were limited," the Fed
said in its summary.
Despite tighter credit conditions for commercial real estate, the Fed said
the credit outlook for many consumers and businesses remains positive. The
survey said economic activity was "moderate, modest or mixed."
Some investors had hoped the report would show the central bank believes the
economy has slowed sufficiently to justify a rate cut. However, others think
that the recent unruliness is the credit markets could also create a rationale
for dropping rates.
The Fed's next monetary policy meeting is on Sept. 18. The federal funds
target stands at 5.25 percent. The central bank lifted rates by a quarter point
17 times in a row between June, 2004 and June 2006 and has been on hold ever
since.
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