By Rom Badilla, CFA
Amid Ben Bernanke's pledge to stand ready to boost growth and a plethora of economic data releases, U.S. Treasuries sold off and found a respite today (Tuesday) after recent declines in yields. After rallying in six out of the past eight sessions where yields retested all-times lows and hit significant resistance levels, U.S. Treasury yields crept up higher today.
Ben Bernanke reiterated that the Federal Reserve continues to have tools at its disposal despite near-zero interest rates and is prepared to act should the economy show signs of weakness. While laying down a possible game plan, Bernanke provided little information of the Central Bank's future action, specifically, at the next FOMC date on August 1.
On the economic data front, core inflation pressures linger while industrial production data surprised to the upside suggesting better economic growth ahead. Today's economic data may put a damper on the U.S. Treasury market's recent bull run.
According to Trade Monster's Bond Trading Center, the yield on the 10-Year U.S. Treasury continued yesterday's (Monday's) late session reversal after nearing the all-time lows from early June and inched higher by 3 basis points from yesterday's close to end the day at 1.51%. On a dollar price basis, the benchmark declined 0.4%. The Long Bond underperformed the most as the 30-Year U.S. Treasury bond fell 1.1% which equates to a yield increase of 5 basis points to close the session at 2.60%. The yield on the 5-Year increased to 0.62% for a 2 basis points move on the day which translates to a 0.2% drop in price.
Click to enlarge:
Bond Investing - U.S. Treasury Yield Curve
Despite the increase in the underlying Treasury market, Corporate Bonds outperformed as yields generally declined, led by the Banking Sector. After beating analysts' earnings expectations despite declining revenues and net income, Goldman Sachs (GS) bonds jumped in price as yields declined. The yield on Goldman Sachs' 5.75% Coupon Maturing January 14, 2022 (CUSIP 38141GGS7) fell 4 basis points to 4.567%.
While Goldman Sachs bonds outperformed Treasuries, Morgan Stanley (MS) outpaced the competition. The yield on Morgan Stanley's 5.5% Coupon Maturing July 28, 2021 (CUSIP 61747WAL3) dropped 6 basis points to close at 5.257%.
Away from the action in the Banking sector, other Investment Grade bonds were generally mixed. The yield on Google's (GOOG) 3.625% Coupon Maturing May 19, 2021 (CUSIP 38259PAB8) fell 3 basis points to a yield of 2.01%. The yield on Cisco Systems' (CSCO) 4.45% Coupon Maturing January 15, 2020 (CUSIP 17275RAH5) ended the session at 1.990% for a basis point increase on the day. The yield on Intel Corporation's (INTC) 3.3% Coupon, Maturing October 1, 2021 (458140AJ9) jumped 3 basis points and finished at a yield of 2.254%.
Target's (TGT) 2.9% Coupon Maturing January 15, 2022 (CUSIP 87612EAZ9) held steady to end at a yield of 2.310% while the yield on Wal-Mart Stores (WMT) 3.25% Coupon Maturing October 25, 2020 increased 2 basis basis points to 1.956%.
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