US Treasuries meander ahead of TIPS auction Thu Apr 14, 2005 12:40 PM ET By Ros Krasny
CHICAGO, April 14 (Reuters) - U.S. Treasury debt prices were narrowly mixed on Thursday, digesting gains from earlier this week, but supported by a downward tilt to economic growth forecasts after a recent spate of weak data.
The day's economic reports were relatively uneventful, with weekly jobless claims and business inventories in line with Wall Street forecasts.
Dealers anxiously awaited results of a $9 billion sale of 10-year Treasury inflation protected notes, or TIPS, especially after Wednesday's auction of five-year notes ended somewhat disappointingly.
"If the TIPS auction goes well we would expect a relief rally in long Treasuries, which might help equities to recover some poise and thus allow the yield curve to resume flattening," strategists at BNP Paribas said in a report.
The 10-year note (US10YT=RR: Quote, Profile, Research) was steady in price for a yield of 4.36 percent, similar to late Wednesday. Resistance is expected to a move below 4.33 percent with 4.39 percent a target to the upside.
Five-year Treasury notes (US5YT=RR: Quote, Profile, Research) were up 2/32 at a yield of 4.01 percent, unchanged. The 30-year bond (US30YT=RR: Quote, Profile, Research) was down 10/32 at 4.70 percent, up from 4.68 percent. Two-year notes (US2YT=RR: Quote, Profile, Research) were at 3.63 percent, down from 3.64 percent.
Recent worries about rising inflation have been pushed aside for now by jitters about the outlook for consumer spending, the growth engine for the U.S. economy.
Several economists this week lowered estimates for first-quarter growth after weak March retail sales and a record February trade deficit.
The Wall Street Journal on Thursday cited worries about a "soft patch" created by high energy prices and rising interest rates that are undermining consumer sentiment.
Some fear that highly-leveraged U.S. consumers will suffer more in a downturn compared with businesses that cleaned up their balance sheets over the past few years.
Deferred Eurodollar futures outperformed Treasuries on Thursday to signal a shift in the outlook for Federal Reserve policy.
The year-end Federal funds rate now projected in Eurodollars is about 3.8 percent, suggesting the Fed could pause its program of rate hikes sooner than expected.
The two-year/10-year Treasury yield curve steepened to 74 basis points from about 72 basis points on Wednesday.
Some technicians see Tuesday's lurch to 67 basis points, the lowest since April 2001, as a possible blow-out low for the spread.
The TIPS results are due at 1 p.m. EDT (1500 GMT). The level of indirect bidding, including that from foreign central banks, was 36.7 percent at the previous auction in January.
A drop below $50 per barrel in crude oil futures could weigh on TIPS demand by suggesting that inflation pressures might have peaked.
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