Treasury Bonds Climb in Volatile Trading

The Associated Press
Wednesday, May 24, 2006; 5:45 PM

NEW YORK -- Treasury bonds climbed in volatile trading Wednesday, helped by woes that weighed on stocks for most of the session.

At 5 p.m., the 10-year Treasury note fell 7/32, as its yield rose to 5.04 percent from 5.03 percent. Bond prices and yields move in opposite directions.

The 30-year bond fell 15/32, as its yield rose to 5.14 percent from 5.12 percent.

The 2-year note was down by 1/32 at 99 28/32 to yield 4.94 percent, up from 4.93 percent.

Yields on 3-month Treasury bills were 4.83 percent, as the discount was unchanged at 4.70 percent.

Although there were some big ticket economic data on the calendar, stock troubles proved to be the market's lodestar. "We are all equity traders now," Merrill Lynch strategist Jim Caron said.

He pointed to stock weakness as boosting the luster of safe harbor investments like Treasuries, and said that that also helped the government's sale of $22 billion in 2-year notes to do well.

Economic data released Wednesday also kept bond prices bouncing, and provided a mixed picture on the economy, even as the numbers again hinted that growth remains robust against widespread expectations of an economic slowdown. Traders focused on new home sales data for April: that measure rose by 4.9 percent to a seasonally adjusted annual rate of 1.198 million units.

While last month's pace was below the huge 12 percent gain seen in March, April sales were nevertheless above what forecasters had been expecting.

"The housing market is clearly softening, and what matters is not so much whether it is cooling but how fast and to what level and when will it stabilize," said RBS Greenwich chief economist Stephen Stanley. "The bulk of the decline in housing demand versus last year's peak has been a one-time washing out of speculators" and suggest the sector is not fixing for a big overall slowing, he explained.

Housing statistics are a key focus of the market. Federal Reserve officials expect housing to moderate as the year moves forward and believe there is already evidence this is happening. Slowing housing will help tame overall economic growth, which central bankers also expect. And collectively, if the forecast is achieved, it will most likely stay the Fed's hand as it considers future interest rate hikes.

While it was less of a focus, the other major report of the day was the government's release of data showing durable goods orders dropping 4.8 percent in April. Durable goods orders are often volatile, and weakness in the lastest month caps a good run for the series, which had posted gains in the prior two months.

© 2006 The Associated Press