By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices swung slightly higher
Wednesday afternoon following the Federal Reserve's Beige Book,
which suggested the economy continued to expand, but that cold
weather interfered with economic improvement.
The central bank's report, which provides anecdotal evidence
about how fast the economy is growing across its 12 districts,
showed that eight of the districts were expanding at a "modest to
moderate" pace, with three districts reporting slower growth due to
the cold weather. Some districts also reported that cold weather
was increasing demand for energy production.
The Beige Book, often ignored by the markets because of its
anecdotal nature, provided a rare dose of clarity, according to
Eric Green, global head of rates, FX & commodity research at TD
Securities.
"What the Beige does do is reinforce our bias and that at the
Fed that the slowdown in economic activity is short lived," he said
in a note.
After the report, the 10-year note (10_YEAR) yield, which falls
as prices rise, was down slightly on the day at 2.689%. The
benchmark yield bounced around near unchanged for most of the day,
but it rose sharply in the previous session as investors unwound
movements into safe investments like Treasurys alongside cooling
geopolitical tensions in Ukraine.
The 30-year bond (30_YEAR) yield was down half a basis point at
3.634%, while the 5-year note (5_YEAR) yield was unchanged at
1.529%.
Treasurys fell Wednesday morning, but recovered after weak data.
Companies that employ about four-fifths of American workers grew
more slowly in February, data from the Institute for Supply
Management showed. The index dropped to 51.6% last month from 54%
in the prior month, missing economist expectations of a 53%
reading. Those companies said their workforces contracted for the
first time in more than two years.
Treasurys "rebounded off of weaker than expected data this
morning, and some short-covering as well after sizeable declines to
start the week," said Kim Rupert, managing director of global
fixed-income analysis for Action Economics LLC. She added that the
market is in "wait and see" mode ahead of a Friday jobs report that
will provide another temperature reading on the economy.
Investors remain concerned about how much of the recent weak
data is attributable to weather, and how much is part of an
underlying slowdown in economic growth, with some concerned that a
sluggish economy could prompt the Federal Reserve to slow down the
pace of its gradual policy normalization. Nonetheless, most expect
the central bank to continue winding down its bond-buying stimulus
program at the current pace.
Treasurys paid little attention to a report that showed
private-sector employment rose by 139,000 jobs in February. That
was a slightly faster pace than a downwardly revised 127,000 jobs
number in January, said Automatic Data Processing Inc. on
Wednesday. Economists had expected 160,000 new jobs.
Despite the soft ADP report, investors are likely to "grit their
teeth" and continue to chalk up the recent string of weak numbers
to cold weather, according to Andrew Wilkinson, chief market
analyst at Interactive Brokers LLC.
"The latest data fails to really show signs of slowdown while
shoring up optimism that the payback resulting from the cold winter
will produce a positive hiring rebound come the spring," he said in
a note.
A number of corporate issuers, including Ford Motors Co. (F) and
AT&T Inc. (T) were in the market selling high-grade corporate
bonds Wednesday, which may have sapped some demand from the
Treasury market.
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