CHICAGO, Oct 20: US debt futures reversed course to turn weak and end softer on Friday as an impending heavy debt issuance from Ford Motor Co. and a lack of significant news on the anthrax scare forced contracts to retreat.
The December Treasury bond declined for the first time in five sessions, and it was the nearby 10-year Treasury note’s first weaker close in six sessions. Both contracts approached their all-time highs in early dealings but later pulled back.
What really kicked off the sell-off in the long end was the announcement of another increase in the overall size of the Ford deal, said John Canavan, analyst at Stone & McCarthy.
The automaker on Friday twice boosted the amount of its bond sale. Ford now is preparing to sell $7.5 billion in debt on Monday. Traders said it is difficult to know whether the deal is hedged in the futures market, which would pressure contracts if hedges were unwound. The approaching extra supply did act as a weight, analysts said.
It might be if portfolio managers need to make room for Ford (paper), they might sell longer-term Treasuries and put it into the higher-yielding Ford debt, said Chris Rupkey, chief economist at Bank of Tokyo/Mitsubishi.
During much of the week, widespread concern over the rising number of exposures to potentially lethal anthrax kept a bid to the market. On Friday, nearby bonds approached the 107-11/32 contract high with a 107-7/32 daily peak.
But without significant new information about exposures to the bacteria, the market was left to wander lower, traders said.
We have no scares of anthrax today. That is somewhat settling. Stocks are tempered it’s not the drama of earlier in the week, said one floor broker.
US equities hovered near the unchanged mark during debt futures trade on Friday, after earlier weakness during the week in response to the anthrax news kept stocks under pressure and lifted debt futures.
Other players suggested the nearby bond was due for a pause after its recent run-up. Profit-takers emerged since the contract came close to its contract high, they said.
For a week now, every piece of information has been either a weak economic number, or an anthrax scare, or something that would make somebody want to buy bonds. I think they’re long. We got up near contract high. I just think it’s a tired market, another floor broker said.
At settlement, December bonds fell 17/32 to 106-9/32, 10-year notes lost 13.5/32 to 108-30/32, five-year notes were down 6/32 at 108-8.5/32, two-year notes slipped 0.25/32 to 105-10.5/32, muni bonds were down 18/32 at 106-3/32, March Eurodollars were 1.5 basis points lower at 97.650, and November fed funds futures were steady at 97.745.—Reuters