Bonds

Bonds Slip as Economy Averting Recession

Reuters
Watch Berkshire

Treasury debt prices erased early gains Monday and fell into the minus column as investors moved into stocks after an economic forecasting gauge suggested that even though the U.S. economy was weak, it has so far averted recession.

In the stock market, investors bought technology shares on hopes that business spending will hold up and near-record oil priceslifted shares of energy firms.

"Both the stock and the bond markets are reacting to better economic news of recent vintage and may be reassessing the severity of any prospective economic contraction that we might see," said David Resler, chief economist at Nomura Securities International in New York.

While bonds suffered as investors showed a preference for stocks, they still traded in well-established ranges.

The benchmark 10-year Treasury note, up 11/32 early in the day, was down 7/32, its yield rising to 3.88 percent from 3.85 percent late Friday. The 3.90 percent to 3.92 percent level in 10-year Treasury yields has frequently drawn in buyers.

Two-year Treasury notes were unchanged, yielding 2.46 percent.

"Some fairly key levels have been holding on a closing basis last week," said John Canavan, analyst at Stone and McCarthy Research Associates. "The 2.5 percent yield on the two-year note has held on a closing basis despite repeated attempts to penetrate it since late April," he said.

On 10-year yields, "the 3.91 percent area has held since the beginning of the year and since the beginning of last November the 4.66 percent yield area has held on the 30-year bond despite repeated attempts to penetrate it," Canavan said.

Aside from the stock market action, bond investors had little else to guide them. No major economic data is due this week and the only report scheduled for Monday, the Conference Board's index of leading economic indicators, came in slightly higher than forecast.

"Information is so two-sided now with respect to the fundamentals that it's more of a day trade environment," said John Spinello, senior vice president and chief fixed-income technical strategist at Jefferies & Co in New York. "When the market goes down, people buy. If we rally toward Friday's highs, they'll be prepared to sell."

Spinello said sellers come in when the 10-year yield gets to 3.78 percent and buyers emerge when the yield rises to 3.90 percent or 3.91 percent.

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