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Treasuries strong as Greenspan discusses deflation

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Treasuries are finding gains with the major equity indexes unchanged after Fed Chairman Alan Greenspan's remarks about deflation brings speculation to the bond market again today that the central bank might buy back longer-dated Treasuries in order to pre-empt deflation.

Mr. Greenspan's comments were broadcast via satellite to a central bank conference in Berlin Germany, with Greenspan saying that deflation, a sustained fall in prices, would be on the agenda at a meeting of the central bank's policy-setting committee later this month.

In recent weeks, renewed fears of deflation have had Fed officials discussing various remedies for deflation, including buying back longer-dated Treasuries.

Today's bond trade sees the 30-year Treasury June futures contract (us03m) 120'25 gaining 1'07 or 1.01% and now looking to test its May 23rd contract high of 121'27, with the longer-dated bond's YIED ($TYX.X) falling 6.6 basis points to 4.364%. While the longer-dated 30-year finds buying in today's trade, the shorter-dated 5-year YILED ($FVX.X) is plummeting to a new multi- decade low of 2.214%, down 1.28 basis points, with the 5-year Note's June futures contract (fv03m) hitting a new contract high at 116'235. The benchmark 10-year YIELD ($TNX.X), which is in the belly of the YIELD curve is falling 1.2 basis points to 3.308%, with its June futures contract (ty03m) at 119'140 +0.72%.

Despite Mr. Greenspan's discussion on deflations, the major indexes here in the U.S. continue to see a sideways trade and holding at near the unchanged level with the Dow Industrials (INDU) 8,894 -0.04% now off 3 points, the broader S&P 500 Index (SPX.X) 967.66 +0.06% holding a 1/2-point gain, while the NASDAQ- 100 Index (NDX.X) 1,189.50 +0.36% is off its best levels of 1,198.95 and the psychological 1,200 level.

Technology sector action has the CBOE Internet Index (INX.X) 134.47 -1.18% along with the Networking Index (NWX.X) 190.34 - 1.1% leading tech losses. The Biotechnology Index (BTK.X) 450.36 -1.08% has started to see some early afternoon weakness after battling back near the unchanged level at the 12:30 PM EST mark, but looks to re-test this morning's lows of 448.46.

The S&P Insurance Index (IUX.X) 266.07 -1.42% now leads today's sector loser list. At the mid-morning mark, UBS Warburg cut CIGNA (NYSE:CI) $50.63 -6.24% to "neutral" from "buy," with UBS Warburg's William McKeever saying the analyst will send out an investor note later today detailing the reasons for the downgrade.

Auto sales for the "Big 3" have not yet been fully released. At approximately 12:00 PM EST, Ford Motor (NYSE:F) $10.64 -3.8% fell to its session low $10.83 and has extended its losses after reporting a 0.7% decline in May total U.S. sales (excluding Volvo, Jaguar and Land Rover).

The company said total sales were 305,995, with domestic truck sales at 206,131 and domestic car sales of 99,864. Total domestic sales for May fell 5.8% compared to May 2002's 312,777. The 5.8% decline reported by Ford are based on the daily sales rate, and reflect 27 selling days this month versus 26 selling days in May of last year.

Dow component General Motors (NYSE:GM) $35.57 -2.11% trades at a session low and has yet to announce its May sales data, while DaimlerChrysler (NYSE:DCX) $31.35 -1.29% also exhibits weakness ahead of its May sales data.

Market internals at this hour have the NYSE reporting just over 734 million shares traded, with decliners just barely outnumbering advancers by a 16 to 15 margin, with 237 stocks trading new 52-week highs compared to just 1 stock having traded a 52-week low.

NASDAQ volume is brisk at 1.12 billion shares, with decliners outnumbering advancers by an 8 to 7 margin. 101 stocks have traded a new 52-week high compared to 6 stocks having traded a new 52-week low.

Yesterday, both the NYSE and NASDAQ reported new 2003 record levels in new highs at 546 and 361 respectively.

Jeff Bailey

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