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Retreating oil prices cause US bond price fall

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by Brian Turner
Retreating oil prices cause bond price fall

By late morning in New York on Tuesday, prices on US Treasury bonds had fallen and yields had risen.

There were several factors involved in the falling prices, including retreating oil prices, a consumer confidence index that was up more than had been expected, and anticipation of Wednesday’s sale of $20 billion in new 2-year bonds.

Traditionally, dealers try to lower prices before a sale of new paper in order to get extra yields out of the new bonds.

The 2-year bonds saw yields rise 5.1 basis points to yield 3.639 percent, while 10-year bonds were up 5.7 basis points to a yield of 3.966 percent after hitting a 7-week low on Monday.

In the eurozone, longer-dated bonds responded to rumors that Dutch pension reform would be delayed. A delay would reduce demand for long-dated bonds. Demand was disappointing in Italy for a new issue of bonds.

The 2-year Schatz was up 4.5 basis points to yield 2.053 percent. The 10-year Bund rose 5.4 basis points to a yield of 3.171 percent, and the 10-year Bund advanced by 5.7 basis points to yield 3.686 percent.

In the UK, the 2-year gilt advanced by 5.3 basis points to yield 4.140 percent, and the 10-year gilt gained 5.2 basis points to a yield of 4.229 percent.

Meanwhile in Japan, confidence in the economy grew based on the release of strong retail sales data. The 10-year government bond gained 2 basis points to yield 1.2 percent.

Another factor in the drop in bond prices was an investor reaction to the possibility that the Bank of Japan might end its zero interest rate policy.

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News posted: June 28, 2005

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