Debt prices hover near unchanged

By Ellen Freilich

NEW YORK (BestGrowthStock) – U.S. Treasuries prices hovered near unchanged levels on Thursday as the newly popular view that the economy will do better next year competed with the appeal of lower bond prices and higher yields.

Treasuries opened higher, offering yields apparently attractive enough to draw buyers. They then slipped at mid-morning following news that a mid-Atlantic regional manufacturing index — from the Federal Reserve Bank of Philadelphia — reached its highest level in December since April 2005.

By noon, those losses were mainly erased, however. While the Philadelphia Fed headline index rose more than expected, its composition was mixed; new orders increased while shipments and employment declined.

Yields are at more appealing levels, but buyers are challenged by the “overriding factor in favor of a better economy,” said John Spinello, chief fixed-income technical strategist at Jefferies & Co. The latest weekly figures from the Investment Company Institute showed the first outflows in two years for taxable bond funds.

The benchmark 10-year note was unchanged, its yield at 3.52 percent, while the 30-year bond was also steady, yielding 4.59 percent.

“The markets are very volatile. Mortgage hedging is a factor. So is talk that PIMCO is making a move to equities,” said Thomas di Galoma, head of fixed-income rates trading at Guggenheim Securities in New York.

PIMCO Total Return Fund, the world’s biggest bond fund at $256 billion, said on Thursday it may start investing up to 10 percent of its assets in “equity-related” securities, such as convertibles and preferred stock.

Data on weekly U.S. jobless claims and November housing starts left little impression on bonds, strategists said.

“All the attention is focused on the Treasury bond market after some more promising signs that bonds are finally finding price support,” said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.

“The layer of resistance from 3.5 percent to 3.6 percent on 10-year yields is proving difficult to breach,” he said.

Ruskin said equities, commodities, and emerging market currencies all need 10-year yields to stabilize to establish “a solid base for real money buying early in the new year.”

But Spinello said there was “a definite shift away from Treasuries into risk despite the Fed’s intentions remaining on the accommodative side.”

No sharp corrections to the market’s recent sell-off have emerged, he observed.

On the economic data front, Ruskin said U.S. housing starts are “essentially flat-lining at very low levels for now, and residential investment will provide little impetus for GDP in the near-term, without being a major drag either.

“The jobless claims data were also consistent with a slow improvement in labor market trends and with the idea that the November employment report overstated weakness,” he said.

(Editing by Dan Grebler)

Debt prices hover near unchanged