Treasuries Up on War Worries, Stocks
reuters.com Wed January 22, 2003 01:26 PM ET By Pedro Nicolaci da Costa
NEW YORK (Reuters) - Treasuries trudged higher on Wednesday, but trading was muted as uncertainty over the prospect of a U.S. war against Iraq forced investors to play a waiting game.
A drop in stocks following a number of lukewarm corporate earnings reports also benefited safe-haven bonds.
"There's fear, fear of war," said Bill Hornbarger, chief fixed-income strategist at A.G. Edwards & Sons in St. Louis. "That's really the thing that is hanging over the financial markets right now."
Government debt will likely remain stuck in its current range, with yields on the benchmark 10-year note US10YT=RR hovering around 4 percent until further developments on Iraq lend the market a sense of direction, Hornbarger said.
After a wave of selling that started the year when a flood of fund managers and traders dumped government bonds and shifted funds into the equity market, Treasuries have retraced most of their losses and two-year yields are back close to record lows.
At 12:40 p.m. (1740 GMT), two-year notes US2YT=RR edged up 1/32 in price for a yield of 1.63 percent from 1.64 percent on Tuesday. Five-year notes US5YT=RR added 6/32 giving a yield of 2.88 percent from 2.92 percent on Tuesday.
Benchmark 10-year notes added 9/32 in price taking yields to 3.94 percent from 3.97 percent. The 30-year bond US30YT=RR advanced 13/32 to 107-23/32, yielding 4.87 percent, versus 4.90 percent at Tuesday's close.
A weekly ABC News/Money magazine report showing a record drop in consumer confidence to a fresh nine-year low in the latest week also reinforced feelings of malaise surrounding the economy.
Meanwhile, disappointing earnings results from corporate giants like Motorola Inc. MOT.N and Eastman Kodak EK.N and J.P. Morgan Chase JPM.N burdened the stock market, dragging major indices lower on the day and giving the bond market a modest safe-haven bid.
"The Street is short, corporate earnings are bad, stock prices are lousy, there's a chance of war," said Vincent Verterano, head governments trader at Nomura Securities. "There's no place for investors to put their money, so they're putting it into Treasuries again."
Michael Moran, chief economist at Daiwa Securities, said should the U.S. go to war, the economy risked slowing further.
"Two things point in that direction. One is what might happen to oil prices and what might occur in terms of terrorist retaliation. Both of those things could crimp economic activity," Moran said.
Global oil production has already been crippled by general strike in Venezuela, now in its 52nd day, aimed at ousting President Hugo Chavez. News that the South American country shut down its forex market for five trading days, looking for ways to curb capital flight amid the ongoing political crisis, was also supportive for U.S. Treasuries, analysts said.
NYMEX crude oil futures CLH3 were little changed on Wednesday, but at $33 a barrel, are well above the roughly $20 a barrel at which they traded just a year ago.