Home »Stocks and Bonds » World » US Treasury prices jump

US Treasury debt prices rose on Monday on worries that the deterioration in the subprime mortgage sector will spill over to the broader market and prompt the Federal Reserve to trim interest rates. The benchmark ABX index, used by investors to hedge subprime mortgage risks, sank to a fresh intraday low.

This led investors skittish about securities backed by subprime loans - made to homeowners with blemished credit histories - to buy less-risky US government bonds.

"The headline risk in the subprime market continues. That market continues to sell off," said Terry Belton, head of fixed income and derivatives strategy at J.P. Morgan Securities in Chicago. The ABX "BBB-" 07-1 index fell to 45 midmarket - the midpoint between bid and ask levels, below its prior record low of 48.64 on Wednesday.

A midmarket quote is seen as a better price gauge in that market given volatile trading there right now. The benchmark 10-year Treasury note's price was up 12/32 for a yield of 5.05 percent, versus 5.10 percent late on Friday. Bond yields and prices move inversely.

Earlier, Treasury prices held their ground despite news from the New York Fed of surprisingly robust regional manufacturing in July, a testament to the subprime premium that has effectively been built into the bond market.

While a Fed cut in benchmark overnight US interest rates in 2007 remains a remote prospect, traders on Monday priced in a roughly 66 percent implied chance of the Fed trimming rates in 2008, up from 35 percent or so on Friday. "The subprime market continues to have problems, which could have a broader ramification for the market," J.P. Morgan's Belton said.

Overhanging subprime concerns partly helped snap US stocks' winning streak on Monday, with losses seen in home builder and mortgage companies' shares. Moody's Investors Service downgraded its outlook on luxury home builder Toll Brothers Inc, and a report from Sanford Bernstein lowered its outlook on Bear Stearns Cos. Inc, which recently bailed out two hedge funds it managed which had invested heavily in subprime mortgages.

While subprime developments will remain an influence on bond prices, investors said this week's inflation reports and Fed Chairman Ben Bernanke's two-day testimony before Congress could be market movers if they reveal any surprises.

In the cash market, two-year notes were up 3/32 in price for a 4.88 percent yield, down from 4.93 percent late Friday. Five-year debt was up 7/32 in price to yield 4.95 percent, down 5 basis points from late Friday, and the long bond was up 23/32 for a 5.14 percent yield, down 5 basis points.

Copyright Reuters, 2007


the author

Top
Close
Close