Bond Prices Steady as Rates Outlook Questioned
U.S. government bond prices were little changed Wednesday, as doubts over the outlook for future Federal Reserve interest rate cuts offset an earlier boost in Treasuries provided by sliding stocks.
Disappointing earnings and lowered outlooks from companies suggested a slowing economy was taking its toll on corporate profits, making the fixed returns of bonds more attractive.
Still, bonds had difficulty benefiting from stocks' woes as investors remained uncertain about interest rates following Tuesday's release of an inconclusive set of minutes from the Federal Reserve's last policy meeting on Sept. 18.
"There was action but not much changed at the end of the day here," said Mario DeRose, fixed-income strategist at Edward Jones in St. Louis, which manages around $250 million in assets.
"I think the market is still trying to figure out what the minutes from the Fed meeting said. Right now the market is kind of stuck in a narrow range until we get some other significant data that might move things."
Benchmark 10-year notes rose marginally, gaining 1/32 in price for a yield of 4.65 percent.
A paltry offering of economic data during the session also left traders more inclined to take their cues from stocks.
Off the Lows
However, stocks pulled off their lows as they headed toward the close, diminishing the earlier gains in bonds.
"The market traded better throughout much of the session, although this strength waned into the afternoon as the downtrade in equities mellowed," said David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Conn., in a note to clients.
Bond prices had come under pressure in recent sessions after the government's monthly jobs report painted a stronger picture of the economy than many had expected.
Also, the minutes from the Fed's meeting did not indicate another rate cut would be an iron-clad outcome when policymakers gather again on Oct 30-31, following its aggressive half-percentage-point cut last month.
The sell-off in the two previous sessions left prices looking attractive to some, though there may also be better bargains elsewhere in the fixed income markets and valuations overall are clouded by the murky interest rate outlook.
"It's hard to say, because you're getting conflicting signals from the economic side," said DeRose at Edward Jones.
"I don't think Treasuries are expensive. Considering where inflation is, you're getting a fair return, but there are probably still better values in the spread market at this point."
Two-year notes held steady, yielding 4.15 percent.
Five-year notes gained 1/32, yielding 4.37
Thirty-year bonds were flat, yielding 4.86 percent.