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Treasurys dragged lower by ECB stimulus report

MARKETWATCH 9:50 AM ET 10/22/14

NEW YORK (MarketWatch) -- Treasury prices fell on Tuesday after a news report suggested that the European Central Bank is considering adding corporate bond purchases to its plans to spur flagging growth in the European economy.

The report boosted risk assets and pulled down U.S. government debt. The 10-year Treasury note (10_YEAR) yield, which rises as prices fall, was up 3.5 basis points at 2.220%.

Specifically, the Reuters report, citing anonymous sources, said the central bank may decide to begin buying debt sold by companies as it ramps up its stimulus measures. The ECB began purchasing covered bonds this week as it undertakes efforts to fight deflation.

A decision on corporate bonds could come as soon as December, according to news reports. A spokesperson for the ECB told MarketWatch that the central bank has made no decisions and played down the news reports.

Undertaking a corporate-bond purchase plan by the ECB could prove tricky.

"Like the [asset-backed securities] market, wholesale buying of corporate bonds will be difficult given liquidity considerations made worse by the ECB's strict purchase criteria," said Adrian Miller, director of fixed-income strategy at GMP Securities, LLC, in a note.

Market participants also digested data on Tuesday showing that U.S. existing homes sold at the fastest pace in a year.

Treasury prices continued to retreat after a massive rally last week that helped cleanse a build-up of short positions. Tuesday's trading actions suggested that "we don't have 'bad' shorts anymore or at least not weak-handed ones," according to a note from Ian Lyngen, senior rates strategist at CRT Capital Group.

The 30-year bond (30_YEAR) yield rose 4 basis points to 3.001% while the 5-year note (5_YEAR) yield climbed 2.5 basis points to 1.421%.

-Ben Eisen; 415-439-6400; [e-mail]

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10-22-140950ET
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