Treasurys Fall, Extend Decline for First Half

By MIN ZENG Prices of most Treasurys were down modestly on the last trading day of June, though bonds recouped most early losses Tuesday afternoon in a volatile session. For the second quarter, Treasurys handed investors a loss as flight-to-quality demand retreated amid an improving tone from money to credit markets. Treasurys were down 2.93% this quarter through Monday, according to data from Barclays. In contrast, the Standard & Poor's 500 stock index was up 16% this quarter through Monday, headed for its biggest quarterly gain since December 1998. Treasurys have handed investors a loss of 4.21% so far this year through Monday, a reversal of a gain of more than 10% last year, according to Barclays. Tuesday afternoon, the benchmark 10-year note was down 8/32 point, or $2.500 per $1,000 face value, at 96 23/32. Its yield rose to 3.521% from 3.490% Monday, as yields move inversely to prices. The 30-year bond was down 4/32 point to yield 4.311%. Light volume for a shortened work week also contributed to the fluctuations, traders said. The bond market will be closed Friday for the Independence Day holiday. The most important data release of the week will be Thursday morning's nonfarm payrolls report. Tuesday afternoon, Treasurys recovered from session lows as U.S. stocks sank following a report showing U.S. consumer confidence unexpectedly slid this month, denting the earlier optimism from two separate releases showing home prices declined less than forecast and improvement in a business barometer for Chicago. "While there are clearly longer-term concerns for the Treasury market, here in the short term, there is continued concern regarding the prospect for growth, and that's putting a bid to Treasurys," said Dan Greenhaus, bond market analyst at Miller, Tabak & Co. in New York. Roseanne Briggen, a Treasury market analyst in New York at Informa Global Markets, noted Treasurys also benefited from "tactical asset reallocations" by balanced funds and pension funds. Traders also noted an early bout of selling in Treasurys was generated by hedging from companies in a shortened work week and ahead of new corporate supply next week. Such hedging faded in afternoon trading, while month-end and quarter-end flows picked up the slack, traders said. Many fund managers need to buy newly minted Treasurys to match the month-end readjustments in the benchmark indexes. Companies and institutional investors also tend to hold low-risk government debt at the end of the quarter as a way to "window dress" their balance sheets. Support also came from the Federal Reserve, which bought $7 billion in Treasurys maturing between seven and 10 years. The Fed will conduct another bout of buying Wednesday targeting maturities between 10 and 17 years. Economic data Tuesday were mixed. The benchmark S&P/Case-Shiller home price index covering 20 major metropolitan U.S. areas fell 18.1% in the year ended in April. On average, economists had looked for an 18.6% decline. The June reading of the Chicago purchasing managers index rose to 39.9 this month. However, the Conference Board's survey of consumer sentiment showed an unexpected drop in its headline index to 49.3 in June from 54.8 in May. Economists had expected the index to rise to 56.0. The expectations index, regarded as a clue to future spending, also dropped, to 65.5 from 71.5.