All About Bonds

Treasurys gain on payrolls; Fed action seen as more likely

2010-08-06T10:11:00.000-04:00

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices rose Friday, pushing yields on 2-year notes to a record low, after a weak report on the labor market raised expectations that the Federal Reserve may take steps next week toward using monetary policy to support the faltering U.S. economy.

"Bond market bulls will use a soft number to justify arguments for the Fed to reinvest proceeds from mortgage holdings, and to reinforce the argument that the risk of a double-dip [recession] is rising," said strategist at RBS Securities.

Yields on 10-year notes (UST10Y 2.86, -0.04, -1.45%) , which move inversely to prices, fell 6 basis points to 2.85%. They dropped as low as 2.83%, a fresh 16-month low. A basis point is 0.01%.

Yields on 2-year notes (UST2YR 0.52, -0.01, -2.25%) fell 2 basis points to 0.51%, recovering somewhat after having touched 0.49% -- the lowest level on record.

Yields on 30-year bonds (UST30Y 4.02, -0.03, -0.62%) also declined, down 4 basis points to 4.02%.

The Labor Department said private employers added 71,000 jobs in July, fewer than analysts expected. Including government employees, the economy lost 131,000 jobs. A smaller drop was anticipated, mostly due to the loss of temporary Census jobs. Read about payrolls.

"It was a pathetic report," said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners. "The revision on last month's payroll is troubling, and we believe the Fed will lean toward quantitative easing at next week's meeting."

The policy-setting Federal Open Market Committee is scheduled to meet Aug. 10.

Earlier this week, The Wall Street Journal said Fed policy makers will consider using cash from maturing mortgage-bond holdings to buy new mortgage or Treasury bonds instead of allowing its portfolio to shrink. The decision will likely depend largely on upcoming economic data -- including the July jobs report, the newspaper said.

Some see only a small chance that the Fed would take such a step because it may not help much. Also, many economists disapprove of so-called quantitative easing, which is effectively printing money and which devalues a currency.

Expectations for the Fed to say something next week could trigger a small rally, perhaps on the order of a decline of 10 basis points in 10-year note yields, said strategists at CRT Capital Group.

In an informal CRT survey earlier this week, respondents saw a 50-50 change that the Fed will institute another round of asset purchases, more likely to be Treasurys than mortgage debt. That kind of shift could prompt a 29-basis point drop in 10-year notes, CRT's survey showed.

In March 2009, the Fed surprised investors by announcing it would purchase Treasurys and more mortgage-related debt than it had already stated. That precipitated 10-year yields plunging 47 basis points -- the biggest single-day drop since the 1987 stock market crash.

Is Big Blue Flashing a Bond Warning?

2010-08-05T10:05:00.003-04:00

By Gregory Zuckerman

Looking for a reason to lighten up on bonds? Look no further than International Business Machines Corp., some say.

On Monday, IBM sold $1.5 billion in three-year debt at a record-low 1% interest rate, or just 0.3 percentage point more than the yield on government debt of similar maturity. It was the lowest coupon of any corporate debt issue in the almost 3,500 issues in Barclays Capital’s U.S. Corporate Index.

Why is it such a big deal? IBM has an uncanny ability to sell bonds at low coupon, just below rates climb. If history holds up rates will again climb, pressuring bond prices.

“I don’t know how they’ve done it over the years, but it’s remarkable,” says Jack Ablin, chief investment officer of Harris Private Bank in Chicago.

As far back as 1979 IBM sold debt just before the Federal Reserve hiked rates two percentage points, touching off a horrible bear market in bonds that sent yields on 30-year Treasury bonds climbing to 14.7% from 9% in just two years. Big Blue again issued bonds near lows for yields in 1989, 1993, 1995 and 1996.

It happened again in 2002, when IBM sold 10-year and 30-year debt. At the time, the yield on 10-year Treasurys was just over 4%; it rose to over 5% over the next several years.

The last time IBM sold bonds, at the end of November of last year, it was just a few months before the Treasury market began to feel pressure and interest rates moved higher, amid fears of inflation.

And IBM doesn’t sell bonds all that often – they’ve issued debt 25 times over the past 21 years.

And even IBM can’t predict every bounce. The tech giant sold debt in late 2007, a year before a plunge in rates, though this debt was “callable,” or allowed IBM to buy it back from investors, something companies do if rates fall and better yields can be tapped.

The impressive record is why some veteran investors, like Mr. Ablin, keep close eye on when IBM sells debt, and believe this time around may signal a high for the market.

“They send the best signal in the market,” Mr. Ablin says.

This time around, IBM sold debt as some investors, including Bill Gross and David Tepper, say the likelihood of a bout of harmful deflation has increased. In deflation, or a period of falling prices, interest from bonds issued by stable companies, such as IBM, becomes more valuable. That could explain why the appetite was so huge for IBM’s bonds.

One caveat: IBM sold three-year debt, instead of longer term debt, perhaps signaling a bit less confidence that rates will climb.

But if past performance is an indication of the outlook for the future, bond yields could be on the rise, perhaps as the Federal Reserve takes aggressive action to try to recharge the economy. Higher rates would mean losses for bond investors.

Treasury to auction $74 billion next week

2010-08-04T10:07:00.000-04:00

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) -- The Treasury Department will auction $74 billion in notes and bonds next week in its quarterly refunding auctions, the government said Wednesday.

Treasury trimmed the size of the 3-year note offering by $1 billion from the previous auction in July. The sizes of the 10-year and 30-year bond auctions are the same as during the previous refunding in May.

Treasury debt managers began paring back coupon auction sizes in May.

In total, the department will auction $34 billion in 3-year notes (UST3YR 0.82, +0.04, +4.73%) , $24 billion in 10-year notes (UST10Y 2.92, +0.01, +0.24%) and $16 billion in 30-year bonds (UST30Y 4.04, -0.01, -0.12%) to refund $33 billion in maturing securities and raise approximately $41 billion.

The department said it would continue to let auction sizes fall gradually. At some point, the size of the auctions will be allowed to stabilize in order to reassess the fiscal outlook. "The ultimate magnitude of offering size reductions will depend on the pace and extent of the economic recovery," the department said.

Matthew Rutherford, the Treasury's deputy assistant secretary for federal finance, told a meeting of primary dealers that the risks to the economic recovery have risen since May and the government's debt managers "must remain extremely flexible to respond to changes in borrowing needs."

Analysts had expected the reduction to continue over the next several months.

Steve Stanley, chief economist at Pierpont Securities, said, in rough terms, quarterly coupon issuance may slide to just under $500 billion by early 2011 from a peak of $600 billion in the first three months of this year.
Colin Kim, director of Treasury's office of debt management said the average maturity of Treasury debt would continue to lengthen but at a slower pace than over the past year.

Treasury said it is considering additional re-openings of inflation-indexed securities or TIPS. The department said more information about the issuance of these securities will be made at the next quarterly refunding in November.

The rest of the government's estimated $350 billion financing requirements will be met with weekly bills, monthly 2-year, 3-year, 5-year, and 7-year notes and other inflation-indexed instruments, Treasury said. Treasury said it may also issue cash management bills during the quarter.

Yields on 2-year Treasury notes fall to record low

2010-08-03T13:46:00.000-04:00

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices rose on Tuesday, pushing yields on 2-year notes to a record low, after a published report said that the Federal Reserve may buy more debt.

The Fed may consider a modest change in how they manage their massive portfolio by using receipts from maturing mortgage debt or Treasury bonds to purchase more debt, The Wall Street Journal reported.

"Effectively, the Fed, by making this adjustment will signal to the market that they are concerned about their forecasts," said William O'Donnell, head of Treasury strategy at RBS Securities. "While I have been in the camp that the second round of quantitative easing is further away, this smaller adjustment would have an impact in reducing overall Treasury yields."

Yields on 2-year notes (UST2YR 0.53, -0.04, -6.90%) , which move inversely to prices, fell 4 basis points to 0.52% recently, after touching a new record low of about 0.51% earlier. A basis point is 0.01%.

Yields on 10-year notes (UST10Y 2.90, -0.07, -2.19%) declined 6 basis points to 2.91%, near the lowest level since April 2009.

Treasury prices stayed higher after the Commerce Department said consumer spending and incomes were unchanged in June, while economists had expected some increases. Read about consumer spending.

While the data are part of last week's GDP report, it's a clear signal about the pace of economic strength, said strategists at CRT Capital Group.

"What it does reinforce is that the economic momentum early in the second quarter dropped sharply by the end of the quarter," they wrote in emailed comments.

The report's measure of consumer prices excluding food and energy did not change in June. Diminishing threats of inflation have made investors more comfortable buying Treasury bonds at such low yields historically. Rising inflation erodes the value of fixed bond payments.

Treasury prices held onto gains after a pair of reports showed an index of U.S. pending sales of homes fell 2.6% in June and factory orders declined.

'While the manufacturing sector has been of crucial importance to the turn in the economy, macro indicators are probably at levels suggesting the likelihood of further upside is limited," said Dan Greenhaus, chief economic strategist at Miller Tabak.

Treasury prices fell Monday as global stocks surged on better-than-expected bank earnings and manufacturing data.

http://www.marketwatch.com/story/treasurys-gain-after-fed-report-data-2010-08-03?siteid=rss

Treasurys lower as bank earnings lift sentiment

2010-08-02T10:05:00.000-04:00

By MarketWatch

BOSTON (MarketWatch) -- Treasury yields rose Monday, as stock futures pointed to a sharply higher opening on Wall Street and traders awaited the release of manufacturing data.

Yields on 10-year Treasury notes (UST10Y 2.94, +0.04, +1.31%) , which move in the opposite direction of prices, added 3 basis points to 2.946%.

Futures on the Dow Jones Industrial Average soared 125 points, buoyed by upbeat earnings from European banks, including BNP Paribas (FR:BNP 55.33, +2.62, +4.97%) and HSBC Holdings (HBC 53.74, +2.66, +5.21%) .

Yields on 30-year Treasury bonds (UST30Y 4.04, +0.05, +1.28%) rose 5 basis points to 4.03%.

Prices on longer-dated Treasurys were pulling back to start the week after they jumped Friday on a report showing U.S. economic growth slowed in the second quarter.

The July ISM manufacturing report will be released at 10 a.m. Eastern.

Treasurys add to gains after GDP

2010-07-30T10:04:00.002-04:00

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices added to gains, pushing 2-year yields back to the lowest on record, after a report said the U.S. economy grew at a 2.4% pace in the second quarter, a little slower than many analysts expected and heightening concerns that the economy may struggle to recover.

Yields on 10-year notes (UST10Y 2.92, -0.07, -2.24%) , which move inversely to prices, fell 6 basis points to 2.94%. A basis point is 0.01%.

Yields on 2-year notes (UST2YR 0.57, -0.02, -2.73%) fell 5 basis points to 0.54%, the lowest in history but a level touched in recent weeks.

The rate of expansion in the first quarter was revised up to a 3.7% rise compared with the prior estimate of a 2.7% increase, the Commerce Department said. See full story.

The second-quarter growth rate "will make it difficult to rise above the 'recession-like' status we are currently operating under and do little to entice corporations to hire, which will likely continue to erode confidence from the consumer," Kevin Giddis, president of fixed-income capital markets at Morgan Keegan, wrote in a note before the release.

Still to come is a pair of regional manufacturing reports and data on consumer confidence.

Longer-dated Treasuries slip before 7-year sale

2010-07-29T10:05:00.003-04:00

By Ellen Freilich

NEW YORK, July 29 (Reuters) - Longer-dated U.S. Treasuries prices slipped on Thursday before the Treasury's seven-year note auction and after the government reported a drop in new U.S. jobless claims.

The Labor Department said new claims for state unemployment insurance fell in the week ended July 24, as did the four-week moving average. But continued claims rose in the week ended July 17, the latest reporting week for that series.

"(Jobless claims) came in a little bit better than expected and yields (rose) a touch," said Michael Pond, Treasury and inflation-linked strategist at Barclays Capital in New York.

"Obviously, the report (was) a bit mixed with continued claims moving higher than expected, but with the initial claims moving down, the market is focusing on that."

Stock market strength also damped the bid for safe-haven U.S. government securities as investors took a chance on riskier assets they hoped would offer them better returns.

The benchmark U.S. 10-year Treasury note US10YT=RR was down 11/32 in price, its yield rising to 3.03 percent from 2.99 percent late on Wednesday.

Thirty-year Treasury bonds US30YT=RR fell 1-8/32, their yields rising to 4.13 percent from 4.06 percent.

Traders said the market would position for the Treasury's auction at 1 p.m. (1700 GMT). Dealers said the success of this week's two- and five-year auctions of U.S. Treasury notes boded well for the sale of seven-year notes this afternoon.

Despite the rebound Treasury prices saw on Wednesday after the $37 billion five-year auction, some dealers expect the seven-year auction high yield to be in line with, or even a little lower than, the yield at which seven-year notes trade simultaneously in the open market. That relationship appeared during the auctions of two-year notes and five-year notes held Tuesday and Wednesday.

Foreign buyers and fund mangers have warmed to the seven-year note since it was reintroduced by the Treasury Department. Direct bidders have taken down an average of 12 percent over the past six auctions, while indirects have taken 49 percent, on average. In late June, directs took 9.8 percent while indirects, often seen as a proxy for foreign central banks, took down 51 percent.

Traders said whatever the price and yield of the seven-year note at 1 p.m. turned out to be, the high yield in the auction would likely match it.

In when-issued trade, the seven-year note US7YT=RR to be sold at 1 p.m. (1700 GMT) yielded 2.425 percent on Thursday. (Additional reporting by Burton Frierson and Emily Flitter; Editing by James Dalgleish)

So What Are Bond Yields Waiting For?

2010-07-28T10:05:00.000-04:00

By Matt Phillips

We’ve had a nice run in stocks, up about 9% from the S&P’s recent low of 1022 on July 2. But yields on U.S. debt haven’t moved nearly that much. The last time the S&P was around its current level of 1114, back in mid-June, the yield on the U.S. 10-year was about 3.28%. As we speak we’re still seeing yields floating around 3.02%. So why are investors dragging their feet on their way out of bonds? Part of it could be a bit of uncertainty amid this week’s bond auctions.

The Treasury is set to auction $37 billion of 5-year notes Wednesday, with results due at 1 p.m. That follows a $38 billion auction of two-year bonds Tuesday, which recorded the lowest yield on record. The Treasury will sell $29 billion of seven-year notes Thursday.

Here’s what George Goncalves, bondwatcher at Nomura Securities, says the market wants to know:

The market wants a resolution to two things before the summer really begins: 1) the bond market wants to see if this is a real melt-up in stocks, or if it is just a knee-jerk reaction to some good earnings numbers; 2) the bond market wants to see the Fed’s response function to the poor data into the next FOMC meeting. We feel that if the data continues to confirm ongoing weakness that the Fed will become more proactive about expressing its stimulus options and/or language changes.

With that in mind, it’ll be interesting to see how the markets react to the Fed’s beige book report on regional economic indicators, due Wednesday at 2 p.m.

Treasurys fall before confidence report, auction

2010-07-27T10:05:00.000-04:00

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices declined on Tuesday pushing yields up before data on consumer confidence and the government's sale of 2-year notes, which are expected to carry the lowest yield on record.

Improvements in stocks also detracted from the appeal of bonds as an investment alternative.

"Good earnings reports from Deutsche (DB 68.69, +2.51, +3.79%) , UBS (UBS 16.28, +1.13, +7.46%) and DuPont (DD 40.47, +1.48, +3.78%) have stocks modestly higher," weighing on Treasury prices, said strategists at RBS Securities.

Yields on 10-year notes (UST10Y 3.03, +0.03, +1.14%) , which move inversely to prices, rose 4 basis points to 3.04%.

A basis point is 0.01%.

Yields on 2-year notes (UST2YR 0.64, +0.04, +6.88%) increased 4 basis points to 0.63% before the government's sale of $38 billion more of the securities.

The July consumer confidence report, due out at 10 a.m. Eastern time, is expected to show a decline from June, according to analysts surveyed by MarketWatch.

The Treasury Department will accept bids on the new 2-year notes until 1 p.m. Eastern time.

The amount is $2 billion less than the government sold last month, which should support demand for the notes, said George Goncalves, a strategist at Nomura Securities, one of the 18 primary government security dealers required to bid at auctions.

"But 2-year yields are at even lower levels from last month's sale, which may make it more difficult for the market to take down," he wrote in a note.

The Treasury Department will also sell 5-year (UST5YR 1.77, +0.04, +2.31%) and 7-year notes (UST7YR 2.47, +0.04, +1.61%) this week.

Treasury yields rose on Monday as U.S. stocks gained on the back of a report showing new-home sales in June rebounded more than expected from a record low in May.

Treasurys turn down before homes-sales data

2010-07-26T10:07:00.000-04:00

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) -- Long-term Treasury prices turned down slightly on Monday, pushing 10-year yields to 3%, as U.S. stocks opened in positive territory, recovering from an earlier decline and reducing the appeal of bonds as an alternative asset.

Losses may be limited as the main economic report of the day -- a report on new-home sales -- is expected to show a slight rebound in June after a plunge in May.

Yields on 10-year notes (UST10Y 3.00, +0.00, +0.07%) , which move inversely to prices, rose 1 basis point to 3%. A basis point is 0.01 percentage point.

Yields on 2-year notes (UST2YR 0.61, +0.02, +3.40%) rose 2 basis points to 0.61%, with short-term debt under pressure ahead of this week's note auctions.

Economists surveyed by MarketWatch expect the Commerce Department to say at 10 a.m. Eastern time that new-home sales rose 5% to a 316,000 pace in June.

In May, sales plummeted 33% to a record low after a tax credit for homebuyers expired. Read about approaching economic reports.

Yields will remain "lower for longer with the long end largely range-bound as expectations for the pace of the recovery are ratcheted lower," said strategists at CRT Capital Group.

On Friday, Treasurys ended last week on a lower note after results of the stress tests of European banks showed fewer banks needed to raise capital but raised questions about what part of banks' books were evaluated. See more about bonds, stress tests.

Starting on Tuesday, the government will sell $104 billion in 2-year, 5-year (UST5YR 1.75, +0.01, +0.58%) and 7-year notes (UST7YR 2.43, +0.01, +0.21%) .

U.S. debt prices turn flat amid stress test fears

2010-07-23T10:03:00.001-04:00

NEW YORK

Fri Jul 23, 2010 9:54am EDT

NEW YORK July 23 (Reuters) - The prices of U.S. Treasuries erased their early losses on Friday, turning flat as investors sought a safe haven amid new concerns about the rigor of the European bank stress tests.

U.S. and European markets have been hotly anticipating the release of a European Union report on 91 European banks, set for noon (1600 GMT). The stress tests were designed to provide investors with a clearer picture of how the recent sovereign debt crisis had affected eurozone financial institutions.

Traders said news that the bank stress tests only examined a portion of the banks' assets threw an element of uncertainty into the marketplace. [ID:nLDE66M1EC]

"This is a surprise in the sense that the scope of the stress test is limited to a certain portion of the banks' risk," said Christian Cooper, senior rates trader at Jefferies & Co. in New York. "It's going to be a little bit less insightful or meaningful than the already watered-down expectations,"

The benchmark 10-year Treasury note US10YT=RR was off 3/32 in price and yielding 2.95 percent. The 30-year Treasury bond US30YT=RR was off 6/32 in price and yielding 3.96 percent. (Reporting by Emily Flitter; Editing by Theodore d'Afflisio)

Bernanke calls economy's outlook uncertain

2010-07-22T10:13:00.000-04:00

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) -- Federal Reserve Board Chairman Ben Bernanke said Wednesday that the outlook for the U.S. economy is "unusually uncertain," and that the Fed is willing to do more if growth proves to be weaker than forecast.

"We remain prepared to take further policy actions as needed to foster a return" to full employment with low and stable inflation, Bernanke said in written testimony delivered before the Senate Banking Committee.

In his testimony, the Fed chairman did not go further and elaborate on what actions the central bank might take. This omission disappointed some in the markets and Wall Street economists.

The stock market sank as soon as the afternoon's earliest Bernanke headlines hit.

At the same time, yields on the 10-year note (UST10Y 2.92, +0.04, +1.42%) fell to the lowest since April 2009 on Bernanke's pledge to do more. Read Bond Report.

In the question-and-answer session, when asked to elaborate on potential further actions, the Fed chairman said the central bank had begun a review of the specific policy steps it may take if the economy were to slow dramatically. "If the recovery seems to be faltering, then we at least need to review our options," he said. "We have not fully done that review."

Bernanke listed three possible steps: changing monetary-policy statements' "extended period" language; cutting the interest paid to banks for their excess reserves; and further action on the balance sheet. This might mean not letting maturing securities run off the balance sheet or buying more assets, he added.

Bernanke said it was too soon to say which option was the front-runner. "All [the options] have drawbacks and potential costs. We do still have options, but they are not going to be the conventional options, and so we need to look at them carefully."

Stocks didn't rally even after Bernanke gave these additional details. The Dow Jones Industrial Average (DJIA 10,322, +201.39, +1.99%) ended down 109 points to 10,120.53.

In large measure, Bernanke's remarks did not stray from the minutes of the Federal Open Market Committee's June policy meeting released last week.

Despite his cautious approach, Fed watchers disagreed on whether Bernanke was hawkish, in other words reluctant to take further action, or dovish, which means ready to ease further.

"The testimony was definitely dovish," said Julia Coronado, senior U.S. economist at BNP Paribas in New York, further commenting that the Fed has taken a step toward easing after having been tilted toward starting the exit strategy.

But many analysts saw Bernanke as reluctant to ease again.

"In my opinion, this statement reads like a Fed chairman way more concerned about draining liquidity as opposed to providing further stimulus. I would argue the market, being unconvinced in the recovery, is taking this as a too-hawkish statement," said Dan Greenhaus, chief economic strategist at Miller Tabak.

The economic team at Goldman Sachs pointed out Bernanke's comment that no one can accuse the Fed of not having been aggressive in trying to support the economy.

"This comes off as someone pushing back against expectations of imminent stimulus rather than one on the verge of doing more," the Goldman Sachs team said in a note.

Bernanke certainly did not dwell on recent weak economic data. He said that deflation was not a near-term risk for the United States. Employment, retail sales, industrial production and consumer-sentiment data have been soft since the Fed meeting in late June.

Essentially, Bernanke kept a stiff upper lip. "The economic expansion that began in the middle of last year is proceeding at a moderate pace," he said, adding that consumer and business spending should keep it going.

"Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth," he elaborated.

The Fed is forecasting growth in gross domestic product of 3% to 3.5% this year. This is above private-sector forecasts, which, on average, are calling for GDP to rise about 2.6% this year.

Bernanke repeated that the Federal Open Market Committee continues to expect that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

He said the housing market remains "weak," and allowed that it will take "a significant amount of time" to restore the nearly 8.5 million jobs lost in the recession. "Financial conditions ... have become less supportive of economic growth in recent months," and bank loans outstanding have continued to contract.

On the positive side of the ledger, Bernanke said there were some signs that the decline in spending on office buildings and factories may be slowing, and that U.S. exports have been expanding.

"My colleagues on the FOMC and I expect continued moderate growth, a gradual decline in the unemployment rate and subdued inflation over the next several years," he testified. The majority of the FOMC membership has reported that the risks to growth have switched to the downside, Bernanke noted.

The Fed slashed the funds rate close to zero in late 2008 and has kept target rates there ever since.

The central bank also has purchased more than $1 trillion in housing-related assets in an attempt to keep long-term market interest rates low.

"Inflation has remained low" Bernanke said, with core inflation trending down over the past two years; slack in labor markets had dampened wage and price pressures, while productivity gains have further reduced costs.

In his prepared remarks, Bernanke talked a good deal about the Fed's exit strategy from its period of ultra-accommodative policies. In contrast, he did not mention what the triggers might be to more asset purchases. Fed officials have said in recent speeches that the bar for further easing is quite high.

At some point, Bernanke said, the Fed must begin raising interest rates. It also plans to sell the housing-related assets to get back to a Treasurys-only portfolio. "Such sales shall be implemented in accordance with a framework communicated well in advance and will be conducted at a gradual pace," he indicated.

Bernanke did not spare senators from technical details of the Fed's balance sheet. He told legislators the Fed is considering reinvesting maturing Treasurys into shorter-term issues to lower the average maturity of its holdings. At the moment, the Fed reinvests in issues of identical duration.

Bernanke tried to straddle the fence on fiscal policy between those worried about the size of the deficit, and others who want the government to spend more money in the near term. "The best approach, in my view," he said, "is to maintain some fiscal support for the economy in the near term, but to combine that with serious attention to addressing what very significant fiscal issues for the United States in the medium term."

U.S. Treasury prices turn higher as stocks slip

2010-07-21T10:06:00.002-04:00

Wed Jul 21, 2010 9:58am EDT

(Updates market reaction to stocks' fall)

NEW YORK July 21 (Reuters) - U.S. debt prices turned positive on Wednesday after stocks opened lower.

The benchmark 10-year Treasury note US10YT=RR was up 6/32 in price to yield 2.93 percent, down from 2.96 percent at Tuesday's close.

The 30-year Treasury bond US30YT=RR gained 13/32 in price to yield 3.96 percent, down from 3.98 percent late on Tuesday.

Treasurys hold gains following housing starts

2010-07-20T10:10:00.000-04:00

Two-year notes' yields set another all-time low

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices remained higher on Tuesday, pushing yields down, after a government report showed U.S. housing starts fell 5% in June to a 549,000 annualized pace.

The data added to growing evidence that faltering conditions in the housing market will continue to weigh on the U.S. economy. See full story on housing starts and building permits for June.

Yields on 10-year notes (UST10Y 2.93, -0.04, -1.28%) fell 3 basis points to 2.93%. Earlier, the benchmark's yield fell as low as 2.91%, whisper-close to a 15-month low.

Bond prices move inversely to their yields. A basis point is 0.01%.

Meanwhile, yields on 2-year notes (UST2YR 0.58, -0.01, -2.03%) had touched a new record low -- 0.57%. They recently traded down 1 basis point to 0.58%.

Bond traders are also eyeing the U.S. corporate earnings parade while awaiting Federal Reserve Chairman Ben Bernanke's congressional testimony starting Wednesday and results on Friday of European Union-administered bank "stress tests."

"Outside of the U.S. tug-of-war between stocks and bonds, we believe the focus is on Bernanke and the E.U. stress tests," said George Goncalves, a strategist at Nomura Securities. "We view both of those events as bond-market friendly."

Treasury slip as stocks gain ground

2010-07-19T10:11:00.000-04:00

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices slipped on Monday, pushing yields up from 14-month lows, as equity futures suggested gains and reduced the demand for bonds as an alternative asset.

Yields on 10-year notes (UST10Y 2.96, +0.03, +1.03%) , which move inversely to price, rose 3 basis points to 2.96%. A basis point is 0.01 percentage point.

Yields on 2-year notes (UST2YR 0.60, +0.01, +1.36%) increased 1 basis point to 0.60%.

"We see continued pressure on Treasury bonds as economic fundamentals are overlooked versus earnings," said John Spinello, strategist at Jefferies & Co.

U.S. stock futures pointed to a higher opening on Wall Street.

Last week, 10-year yields dropped to the lowest since April 2009 and 2-year yields fell to a record low following the government's bond sales and unexpected weakness in consumer and manufacturing sentiment. Read Friday's Bond Report.

"Treasurys have rallied strongly over the last three days with softer data, supply behind us, and with deflation fears as a backdrop," said strategists at RBS Securities.

The only economic report for the day is the National Association of Home Builders index on confidence. The rest of the week will bring data on home sales, forecast to remain very weak after the government's tax credit ended. Read about housing data.

"The week will focus on [the] housing market and the negative trend post tax credit expiration, which should continue to reveal a troubled market and keep Treasurys bid," said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners

U.S. rates futures jump, euro rates escalate

2010-07-16T14:58:00.000-04:00

Fri Jul 16, 2010 2:45pm EDT

By Richard Leong and Ian Chua

NEW YORK/LONDON, July 16 (Reuters) - U.S. short-term interest rates futures rose to contract highs on Friday, as traders upped their bets the Federal Reserve will leave rates near zero far into 2011 to support the economic recovery.

Across the Atlantic, what banks charge each other for euros continued to rise with three-month borrowing costs reaching a 10-1/2-month high because of less cash in the banking system.

This week's disappointing data, and the Fed's downgraded outlook on growth and inflation for 2010, have spurred these bets on low U.S. rates, traders said.

"The probability of a rate hike in the first half of next year has gone a lot this week. Maybe we won't see a move until late 2011," said Christian Cooper, senior rates trader with Jefferies & Co. in New York.

For example, the June 2011 contract FFM1 on federal funds, or the overnight loan of excess reserves between banks, hit a contract high of 99.63.

This implied traders see the fed funds rate, which the Fed targets, at 0.38 percent at the end of second quarter of next year. It suggested traders now see a 1-in-2 chance that the Fed will raise rates in the first half of next year. A week ago, the implied rate in the mid-2011 was 0.44 percent, or a 3-in-4 chance of a rate hike by the middle of next year.

This bullish outlook manifested itself in other parts of the U.S. money market.

U.S. Treasury bill rates were steady to lower with the one-month rate US1MT=RR down nearly 2 basis points at 0.14 percent, while the London interbank offered rate on three-month dollars USD3MFSR= slipped to 0.52125 percent, the lowest fixing since May 24.

Among dollar interest rate swaps, the 10-year swap spread over Treasuries briefly turned negative, something that has not occurred since early May. This signaled an intense demand for private credit, which was counterintuitive considering the safe haven rally for U.S. Treasuries this week, traders and analysts said.

The 10-year spread, a gauge of private borrowing cost relative to the government's borrowing cost, was last quoted at 1.00 basis points. This compared with 3.25 basis points late Thursday and 5.25 basis points a week earlier.

This week's tightening in swap spreads was also driven by hedging of companies which plan to issue debt after the current period when they report quarterly earnings, traders said.

RISING EURO RATES

Bank-to-bank euro funding costs rose again after the overnight Eonia EONIA= rate was fixed at 0.488 percent, well above the average of 0.35 percent seen since June 2009 and ignoring the periodic spikes driven by the European Central Bank's liquidity draining operations.

Eonia is a weighted average rate of all overnight unsecured bank-to-bank lending transactions.

Compounding the situation was the start of a new reserve maintenance period on Wednesday when banks tend to front-load the build up of their reserve requirement to avoid a last minute dash for cash.

With less funds available, overnight deposits at the ECB dropped to 61.6 billion euros, well off an average of around 200 billion euros seen in the previous maintenance period.

"The bottom line is that a trend decline in excess liquidity still seems most likely, although not as swiftly as many expect given the increasing attractiveness of ECB operations amid rising Euribors," said Commerzbank interest rate strategist Christoph Rieger in Frankfurt.

This week's ECB liquidity operations saw a further drop in excess liquidity as banks rolled over less one-week funds after repaying 442 billion euros of one-year loans at the start of the month.

The three-month euro Libor EUR3MFSR= rose to 0.79373 percent, while the equivalent Euribor rate EURIBOR3MD= hit 0.861 percent, nearing the ECB's refinancing rate of 1.0 percent. See [ID:nEAP000035]

The three-month euro Overnight Index Swap rate EUREON3M= traded up to 0.6 percent, the highest in a year. This drove in the 3-month Libor/OIS spread -- a gauge of money market stress -- 19 basis points, suggesting the moves were not due to an escalation of banking worries.

Bonds edge higher on subdued inflation

2010-07-16T10:04:00.000-04:00

Fri Jul 16, 2010 9:30am EDT

NEW YORK, July 16 (Reuters) - U.S. Treasuries edged higher on Friday after data showing U.S. consumer prices fell for the third straight month.

The Labor Department said its seasonally adjusted Consumer Price Index dipped 0.1 percent last month after falling 0.2 percent in May, confounding expectations of a flat reading and underscoring the view that inflation was no threat to bonds now.

It follows other signs of low price pressure after Thursday's weak regional factory reports showing some manufacturers faced falling prices for the goods they produced.

Those reports followed a downgraded growth and inflation view by the Federal Reserve on Wednesday, which also showed a few policy makers concerned about the risk of a deflationary period of falling prices, growth and business activity.

"It still doesn't look like inflation is much of an issue. So, the bond market is rallying just a tad," said Ira Jersey, U.S. interest rate strategist at Credit Suisse in New York

The benchmark 10-year note US10YT=RR was last up 3/32 in price, yielding 2.99 percent versus Thursday's close of 3.0 percent.

http://www.reuters.com/article/idUSN169577720100716

Bonds edge up on worrying data

2010-07-15T10:15:00.000-04:00

Thu Jul 15, 2010 9:46am EDT

* Bonds up on faltering recovery view

* PPI, Empire state highlight growth, deflation worries (Updates after bonds turn positive, adds quote)

NEW YORK July 15 (Reuters) - U.S. Treasuries rose on Thursday as faltering regional manufacturing activity and declining producer prices painted a bond-positive picture of slowing growth and low inflation.

The New York Federal Reserve Bank's "Empire State" general business conditions index fell this month to its lowest since December 2009 while U.S. producer prices declined for a third straight month in June.

Bonds turned positive on the data, which highlighted concerns the recovery from the worst U.S. recession since the 1930s was fizzling while the prospects of a deflationary spiral of lower wages, prices and business activity had risen.

The data also came a day after the Federal Reserve downshifted its view of growth and inflation and said it was considering additional steps to boost the U.S. economy if the softening outlook took a noticeable turn for the worse.

"The PPI number confirms the fears of some Fed officials that deflation is creeping into the U.S economy," said Kathy Lien, director of currency research at GFT Forex, New York.

The benchmark 10-year note US10YT=RR was last up 2/32 in price, yielding 3.04 percent versus Wednesday's close of 3.05 percent.

Ironically, the manufacturing and PPI figures overshadowed news that claims for jobless benefits fell to their lowest level in nearly two years.

The jobless claims data have been one of the most closely watched releases as analysts seek to gauge the strength of the economic recovery.

However, the data was decidedly mixed, with a report showing U.S. industrial production eked out a small gain in June, beating expectations for a slim decline. For details see [ID:nN15197843]

http://www.reuters.com/article/idUSN1519873320100715

Bonds up as weak retail sales fan economic worry

2010-07-14T10:11:00.000-04:00

By Burton Frierson

NEW YORK, July 14 (Reuters) - U.S. Treasuries rose on Wednesday as weak retail sales data boosted demand for safe-haven debt despite the weight of a looming long-bond auction later in the day.

Data showed sales at U.S. retailers fell for a second month in June, adding to evidence the economic recovery was faltering and bringing supposedly safer assets such as Treasuries back into favor. For details see [ID:nN14122226].

The government's $13 billion auction of 30-year bonds is the last of this week's $69 billion in coupon debt sales, which have so far met with a poor reception by investors wary of parting with cash for the low yields on offer.

The weak retail sales report and expectations the Fed will downgrade its growth outlook when it releases minutes to its latest meeting at 2 p.m. (1800 GMT) could add to demand at the auction, though prices remain expensive after recent rallies.

"A damp retail sales report, although not unexpected, gave a little bit of support to Treasuries. I think there's just enough uncertainty around that is keeping a bid in bonds," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

"On the Fed minutes we already know they downgraded their outlook on growth and inflation from their statement last June. We get a little bit more of an update of the various positions on the Fed. The Fed is just kind of discussing how to respond if the economy continues to falter."

The 30-year long bond US30YT=RR was last up 23/32 in price, yielding 4.07 percent versus Tuesday's 4.11 percent.

Losses earlier in the session pushed the 30-year yield up to 4.12 percent, its highest in more than two weeks.

Analysts see next support at 4.27 percent.

U.S. Treasuries rallied almost non-stop for the three months leading up to July on worries over a flagging recovery and Europe's fiscal crisis, producing the paltry yields that hurt offerings of three- and 10-year notes earlier this week.

Meanwhile, some say the mild sell-off in recent days might just be enough to help the 30-year auction at 1 p.m. (1700 GMT) However, Rupert said the long bond sale would attract better interest if yields rose to 4.15 percent.

Though up on the day, long bonds appeared to be slightly underperforming other sectors of fixed income, with the swap spread narrowing to -22.50 basis points from Tuesday's -22.25 basis points.

The benchmark 10-year note US10YT=RR was last up 13/32 in price, yielding 3.08 percent versus Tuesday's close of 3.12 percent.

http://www.reuters.com/article/idUSN1412483820100714

Yield on T-note Rises: Risk Takers Waking Up?

2010-07-13T10:06:00.000-04:00

By Matt Phillips

This is an important sign of life among the risk takers out there: The yield on the 10-year which only earlier this month was burbling below the 3.00% level is making a tidy move higher this morning to about about 3.08%, up about four basis points.

Other metrics used to gauge the risk-taking classes are less conclusively optimistic. The carry-trade cross — or the exchange rate between the Japanese yen and the Aussie dollar — is up a bit. (That’s a negative for risk, although that likely can be traced to the current political drama of the island nation.) On the other hand, the U.S. dollar index is getting hit on nasty looking deficit numbers, which would add at least a bit of confirmation to the belief that investors are preparing to make some bets Tuesday.

For its part, the rise in the yield on the 10-year might make things interesting for Uncle Sam as he plans to auction off $21 billion in 10-year notes Tuesday. Some of the weakening in the price of the 10-year — prices move in the opposite direction of yields — may be tied to the somewhat middling auction of U.S. three-years Monday. The 10-year auction goes off at 1 p.m. We’ll see if Uncle Sam will have to sweeten the deal for investors — that is raise the yield — in order to get people to lend. That would be a good sign that investors see better opportunities elsewhere in riskier assets.

http://blogs.wsj.com/marketbeat/2010/07/13/yield-on-t-note-rises-risk-takers-waking-up/?mod=rss_WSJBlog&mod=marketbeat

Bernanke says spurring credit key to rebound

2010-07-12T15:19:00.001-04:00

Mon Jul 12, 2010 3:07pm EDT

By Mark Felsenthal

WASHINGTON, July 12 (Reuters) - Boosting credit to struggling small businesses is vital to keep a tepid U.S. recovery on track but wary banks can't be forced to lend from their bountiful reserves, Federal Reserve officials said on Monday.

Fed Chairman Ben Bernanke underlined the necessity for companies -- many still working their way back to health from the deep recession -- to be able to get loans when they need them to expand and to hire.

"To support the recovery, we need to find ways to ensure that credit-worthy borrowers have access to needed loans," he told a Fed-sponsored conference on small business financing.

The conference caps more than 40 information-gathering meetings the central bank arranged and held across the country to try to find ways to overcome obstacles to lending.

On the sidelines of the event, Fed Governor Elizabeth Duke drew attention to another harsh reality: the difficulty of persuading lenders that a slow-paced recovery warrants putting their money at risk by lending it.

"I don't know of any way we can actually force the banks to lend the reserves," she told CNBC television. "There are a lot of reserves out there and I think it's going to take general economic improvement once the business prospects are better."

A scarcity of credit for small- and medium-sized businesses, traditionally the driving-force behind job creation, has been blamed for woes ranging from a 9 percent-plus unemployment rate to a perceived risk of double-dip recession.

LACKER SAYS DOUBLE-DIP FEARS OVERDONE

With a recent spate of economic data suggesting the recovery is flagging, the Fed faces a quandary. It has already lowered interest rates to near zero and pumped up bank reserves by flooding the financial system with more than $1 trillion.

While most analysts expect the Fed's next move will be to eventually tighten monetary policy, some think further easing may be needed to prevent a new downturn.

The U.S. central bank could pump more liquidity into the economy through a variety of so-called "quantitative easing" methods like buying assets from banks or buying mortgage securities in hope of spurring more lending.

Richmond Federal Reserve Bank President Jeffrey Lacker argued on Monday that double-dip fears were overdone, saying the string of softer-than-expected data, from anemic private hiring to battered consumer confidence, was not "inconsistent with a moderately paced recovery."

"Market participants seem to be overreacting to a couple of reports that have been a little bit below what people expected," he told reporters who attended an event at the Richmond Fed's headquarters.

Lacker, a "hawk" on inflation who is not a voter this year on the Fed's policy-setting Federal Open Market Committee, was the only Fed speaker to directly address the policy outlook.

"For me, consideration of further easing steps now is very far away," Lacker said. "It would take a very substantial, unanticipated adverse shock."

Like Lacker, Duke said she felt the economy was on track for continued growth. In response to a question, she said she didn't think a double-dip recession was a major worry.

"It's still a moderate recovery," Duke said, adding that she expects credit flow to "gradually loosen up" but in response to brightening business prospects rather than because it is forced upon bankers.

The economy has grown for three straight quarters beginning in the third quarter of 2009, but recent economic data implying softening housing markets and weak consumer confidence has led investors to fear the expansion could stumble again.

Credit availability has become a concern after the 2007-2009 crisis that hit financial firms exceptionally hard. Total loans held by commercial banks dropped 5 percent last year and lending has continued to shrink in 2010.

Bernanke said small businesses play a key role in job creation but they continue to report tough credit conditions. The Fed "takes very seriously" complaints from bankers that bank examiners often stop lenders from making good loans, he added.

But Bernanke also said lower loan demand and many businesses' still-weak financial position were factors holding back lending.

The Obama administration backs legislation to create a $30 billion fund to boost capital at community banks to encourage small business lending, but that faces an uncertain fate in Congress where lawmakers seeking re-election in November are wary of anything that could be seen as a bailout.

http://www.reuters.com/article/idUSN1219495320100712

Treasurys up before auction of 3-year notes

2010-07-12T10:19:00.000-04:00

By Deborah Levine, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices rose on Monday, pushing down yields before the government sells $35 billion in 3-year notes, the smallest amount in a year.

Yields on the benchmark 10-year notes (UST10Y 3.05, -.00, -0.13%) fell 2 basis points to 3.04%. A basis point is 0.01 percentage point. Yields move in the opposite direction as prices.

Yields on 2-year notes (UST2YR 0.64, +0.00, +0.63%) declined 1 basis point to 0.63%.

The Treasury Department will accept auctions on new 3-year notes (UST3YR 1.02, +0.01, +0.49%) until 1 p.m. Eastern time.

The to-be-issued securities, maturing in July 2013, were trading around the 1.03% level earlier in the day, according to RBS Securities' strategists.

"Today's auction award is highly likely to be far-and-away the lowest in history," they wrote in a note. The previous low for the security was 1.20% in January 2009.

Though no major economic data were due for release on Monday, Tuesday will bring a report on retail sales. Economists surveyed by MarketWatch expect it to show sales fell 0.4% in June. Reports on consumer-price inflation and consumer sentiment are also scheduled for the week. Read about economic reports.

The government will also be selling more long-term debt this week, including 10-year notes and 30-year bonds (UST30Y 4.04, +0.00, +0.10%) .

Last week, Treasury prices fell for the first week in three, as fears about the global recovery eased and stocks jumped.

http://online.wsj.com/public/page/news-fixed-income-bonds.html

Worst of sovereign-debt crisis is over, says ECB's Stark

2010-07-09T13:14:00.000-04:00

By William L. Watts, MarketWatch

FRANKFURT (MarketWatch) -- The worst of the recent financial-market turmoil tied to Europe's sovereign-debt crisis appears to have passed, a top European Central Bank official said Friday.

"It seems the worst is over," said Juergen Stark, a member of the central bank's executive board, in a news conference on the sidelines of a central-banking conference.

Financial markets have "calmed down" and tensions have eased, as evidenced by the expiration last week of 442 billion euros of one-year, fixed-rate loans extended by the European Central Bank to euro-zone commercial banks without any major hitches, Stark said.

The European Central Bank no longer offers one-year refinancing operations. Banks used a six-month refinancing facility and a six-day bridging facility amid the expiration but rolled over around €200 billion less than the amount that was due to expire.

The resulting reduction in liquidity resulted in only a slight rise in money-market rates, however, signalling confidence in the euro area and the banking system, Stark said, noting the "enormous nervousness" in the markets about the expiration's potential impact.

Stark also had tough words for the International Monetary Fund, saying that criticism of the euro zone in its latest economic outlook report suggested the institution "has not caught up to reality."

The IMF said earlier this week that problems in the euro zone threatened to spill over to other regions and potentially derail growth. Read more about the IMF.

Stark also said so-called stress tests, to be administered to 91 instituting representing the bulk of the European banking system with the results to be published July 23, would be credible and dismissed worries heard in some quarters that the parameters of the tests may not be sufficiently stringent. Read more about the stress tests.

"You shouldn't listen to some of those who always ask for more," Stark said, adding that banks "went through a test already -- a reality test," courtesy of the financial crisis.

In an earlier panel discussion, Stark downplayed the potential for deflation in the euro zone, but acknowledged that some countries may see a temporary period of negative inflation rates.

"Temporary negative inflation is not a big issue for the euro area," he said.

In a speech to the conference, ECB Vice President Vitor Constancio said debt problems in the euro zone could slow growth but wouldn't derail it.

"This new chapter of the financial crisis ... threatens to weaken -- but not kill -- the recovery," he said.

Costancio said efforts to stabilize the banking system and strengthen penalties for violating fiscal rules would ultimately result in a more robust monetary union.

He also rejected ideas that countries with large current-account surpluses should undertake policies designed to boost domestic consumption in order to offset cutbacks in domestic demand by countries running deficits.

Some commentators have argued that Germany should move to boost domestic demand to offset the drop seen in so-called peripheral countries of the euro zone.

"This type of argument can go too far," he said. "In some cases, there may be some room for maneuver, but even if it is ignored that the euro area is not a closed economy, so that all members have other markets to support their growth, it would not be right to ask countries to compromise unreasonably on their international competitiveness or to put the sustainability of their public finances at significant risk."

http://www.marketwatch.com/story/ecbs-stark-worst-of-crisis-is-over-2010-07-09?siteid=rss

European Banks Tap Bond Market

2010-07-09T10:01:00.001-04:00

By Mark Brown

European banks are taking advantage of better sentiment in bond markets to raise money after sovereign bond market volatility limited issuance in May and June.

HSBC Holdings of the U.K. and France’s Banque Federative du Credit Mutuel are offering 10-year, senior, benchmark bonds Friday, after Thursday saw five new senior deals, two lower tier 2 issues and one covered bond.

Investors are ready to buy bank bonds again as peripheral euro-zone sovereign spreads tighten and the economic outlook appears to improve.

“Banks are just issuing because the market is open at the moment,” said a debt syndicate banker. “Bunds were lower Thursday, bank spreads were tighter and there was a very positive tone”

Thursday’s new issues totalled €5.6 billion and took supply for the week to €11.5 billion, according to Deutsche Bank AG, “although the market is still predominantly focused on higher quality names so far,” Deutsche credit strategist Jim Reid said in a note.

“We will probably see a flurry of fresh supply over the next days as issuers try to lock in some of their funding before the European summer recess,” Mr. Reid said. “Days like yesterday are a tiny but important step towards normality.”

Sell Bonds, Buy Precious Metals, Rice on Supply Shortages, Jim Rogers Says

2010-07-08T10:09:00.000-04:00

By Ranjeetha Pakiam - Jul 7, 2010

Investors should sell bonds and buy commodities like silver and rice as a “refuge” as the world economy may continue having problems, Jim Rogers, chairman of Rogers Holdings said.

“Bonds are not a good place to invest in,” Rogers said at a conference in Kuala Lumpur today. “You should own commodities because that’s your only refuge” whether it’s silver or rice, said Rogers, who predicted the start of the global commodities rally in 1999.

Gold has gained 8.3 percent this year, leading advances in precious metals, as investors seek haven assets to protect their wealth amid concern the global economic recovery will falter. Still, commodities overall capped their worst quarter in more than a year on investors’ concern that slower growth from China to the U.S. will sap demand.

The best place to be is in commodities and other natural resources, including precious metals like silver, platinum and palladium, said Rogers, who co-founded the Quantum Hedge Fund in 1970. Commodities are good to buy as supply shortages are already developing, the Singapore-based investor said.

Gold prices will rise to more than $2,000 per ounce, said Rogers, without giving a timeframe. Bullion for immediate delivery declined 0.4 percent at $1,187.85 an ounce at 6:34 p.m. in Singapore. It reached a record $1,265.30 on June 21.

‘Straight Up’

“I do own gold,” he said. “Gold has been extremely strong of late, but I’m not rushing out to buy gold. I don’t like to buy things that have been going straight up.”

While gold has been trading at all-time highs, silver remains 60 to 70 percent below its peak and is a better investment, he said. Silver reached an all-time high of $50.35 in New York in 1980.

Silver for immediate delivery fell 1 percent to $17.6413 an ounce at 6:22 p.m. Platinum dropped 0.6 percent to $1,507.68 and palladium declined 1.2 percent to $433.35.

Still, agricultural commodities are better than metals as prices are “very depressed,” he said, pointing to sugar which is 75 percent below its all-time high in 1974. Raw sugar for October delivery slid 1.2 percent to 16.49 cents a pound on ICE Futures U.S. in New York. It reached a record of 66 cents in November 1974.

“Not many things are 75 percent cheaper that 36 years ago, but that’s true of sugar,” Rogers said. “Agriculture commodities are desperately cheap compared to 20, 30, 40 years ago.”

Rice futures on June 30 touched $9.55, the lowest price since October, 2006, on rising production and declining demand. The contract for September delivery gained 0.7 percent to $9.935 per 100 pounds on the Chicago Board of Trade at 6:15 p.m. in Shanghai.

http://www.bloomberg.com/news/2010-07-07/sell-bonds-buy-precious-metals-rice-on-supply-shortages-jim-rogers-says.html