TREASURIES-Bonds gain on soft manufacturing, jobs data

Reuters: [2008-05-15 23:13:00]

(Updates prices, adds comments, changes byline)

* Weak U.S. output, manufacturing reports boost bonds

* Continuing jobless claims signal softening job market

* Expectations for year-end rate hike intact

By Ellen Freilich

NEW YORK, May 15 (Reuters) - U.S. Treasuries prices climbed on Thursday after signs of softness in manufacturing and the job market reminded investors that the economy remains weak.

The bond market stuck to its newfound view that inflation will force the Federal Reserve to start hiking interest rates by year-end, but rate futures contracts did cut the chances of a rate hike as soon as October to near 40 percent, from as high as 70 percent on Wednesday.

The recent shift in investors' perception about the course of Fed monetary policy pushed the two-year note's yield to four-month highs around 2.60 percent earlier this week.

But on Thursday, the 2-year Treasury note's price rose 5/32 and its yield easing back down to 2.44 percent <US2YT=RR> from 2.54 percent late Wednesday.

Traders said a negative reading on the Empire State manufacturing report for May, a rise in new jobless claims last week and a surprisingly sharp drop in April industrial production propelled bond prices higher.

The Philadelphia Federal Reserve Bank survey showed that factory activity in the U.S. Mid-Atlantic region shrank for a sixth straight month in May.

"The bond rally made a lot of sense given the nature of the economic data," said Michelle Meyer, an economist at Lehman Brothers in New York. "We had a very disappointing industrial production report and both the Empire State manufacturing and the Philly Fed indexes suggested continued contraction in manufacturing."

News that U.S. home builder sentiment moved nearer to a record low set in December as housing market conditions worsened also fed the bond market rally, Meyer said.

The National Association of Home Builders said its preliminary NAHB/Wells Fargo Housing Market Index fell within one point of the record low of 18 set in December 2007. Readings below 50 indicate more builders view market conditions as poor than favorable.

NAHB measures of future housing activity, including indexes of sales expected in the next six months and prospective-buyer traffic, suggested that builders will continue to cut back on construction, Meyer said.

Bonds made headway despite stiff competition from stocks for investors' cash. Major stock indexes ended higher as technology and retail stocks did better.

Wachovia Securities senior economist Gary Thayer said news that Congress had passed legislation that could curb some oil market speculation gave stocks and bonds an afternoon lift.

The Senate and House of Representatives overwhelmingly approved legislation to give the government's futures market regulator more authority over oil and natural gas trading.

With oil prices near record highs, Thayer said bond and stock investors responded positively to the possibility that less speculative buying could tame oil prices somewhat, alleviating some concerns about inflation "down the road."

The benchmark 10-year Treasury note's price, which moves inversely to its yield, was up 25/32 in late trade, its yield easing to 3.83 percent <US10YT=RR>, still not far from the four-month high above 3.98 percent hit on Wednesday.

Treasury yields have carved out new, higher ranges over the past two weeks as risk aversion associated with the credit crisis has started to ebb and investors have started to buy more stocks and non-government bonds.

Federal Reserve Chairman Ben Bernanke on Thursday strongly urged financial institutions at the center of the credit crisis to raise capital. "The Fed will keep hammering away at that theme," said Cary Leahey, an economist at Decision Economics in New York. "The Fed thinks it has done a lot to ease the credit crisis and financial institutions now have to pick up the ball and run with it."

The 30-year U.S. Treasury bond <US30YT=RR> rose 29/32 in price, its yield easing to 4.56 percent from 4.62 percent on Wednesday. ((Ellen.Freilich@thomsonreuters.com; +1-646-223-6309; Reuters Messaging: ellen.freilich.reuters.com@reuters.net)) ((Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com

* BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com)) Keywords: MARKETS BONDS

---------------- MARKET SNAPSHOT AT 1645 EDT (2045 GMT) -------------- 
 
June T-Bond <USM8>           116-24/32  (+1-7/32)      
June 10-Year note <TYM8>     115-14/32   (+28/32)      
 
                                        Change vs       Current 
                                      previous NY close   yield 
Three-month bills <US3MT=RR>     1.795    (+0.015)        1.828 
Six-month bills <US6MT=RR>       1.830    (-0.035)        1.873 
Two-year note <US2YT=RR>      99-13/32    (+6/32)         2.434 
Five-year note <US5YT=RR>    100-5/32    (+19/32)         3.087 
10-year note <US10YT=RR>     100-14/32   (+26/32)         3.822 
30-year bond <US30YT=RR>      97-2/32    (+31/32)         4.555 
 
--------------------------- SWAP SPREADS  ---------------------- 
      May 15 May 14 May 13 May 12 May 9  May 8  May 7  
2-YR  78.50  83.00  81.00  79.75  80.50  78.75  80.25  
3-YR  84.00  87.50  86.00  84.75  84.50  83.75  85.00  
5-YR  76.75  81.75  81.75  80.25  79.50  77.75  78.00  
10-YR 56.50  61.00  61.75  60.25  60.00  58.75  61.00  
30-YR 27.00  31.50  32.25  31.50  31.00  30.25  32.00  

Canada dollar closes at parity, bonds rise

Reuters: [2008-05-15 23:11:00]

    * Canadian dollar closes at parity with U.S. dollar 
    * Oil provides background for currency's strength 
    * Bonds higher across the curve in thin trading 
    
    By John McCrank 
    TORONTO, May 15 (Reuters) - The Canadian dollar closed at 
parity against the U.S. dollar on Thursday as robust energy 
prices helped it recover from early losses after the release of 
weak manufacturing sales data. 
    Domestic bond prices rose across the curve as the weak 
domestic data highlighted the impact the U.S. economic downturn 
is having on Canada. 
    The Canadian currency closed at C$1.0000 to the U.S. 
dollar, up from C$1.0043 to the U.S. dollar, or 99.57 U.S. 
cents, at Wednesday's close. 
    It was the currency's highest close since March 18. 
    "It really does seem like the environment in the background 
is improving for the Canadian dollar in the short term and 
that's partly to do with energy prices... but also developments 
in other economies," said David Watt, senior currency 
strategist at RBC Capital Markets. 
    The price of U.S. crude oil <CLc1>, while off its record 
high of nearly $127 a barrel hit earlier this week, remains 
lofty. Canada is a major oil exporter and its currency is often 
influenced by the commodity. 
    The Canadian dollar was also up against the crosses, such 
as the currencies of New Zealand, the Britain, and the 
euro-zone. 
    Watt said that was due to weaker growth outlooks and the 
potential for interest rate cuts in those places. Meanwhile, in 
the U.S., Canada biggest trading partner, growth is holding up 
better than many people expected. 
    So while the Canadian and U.S. central banks have both made 
deep cuts to their interest rates, they may be ahead of the 
curve compared to other major economies. 
    The Bank of Canada is expected to make at least one more 25 
basis point cut in its key overnight rate to 2.75 percent at 
its next fixed announcement data on June 10. 
    Domestic data helped bolster that view, as Canadian 
manufacturing sales fell 1.6 percent in March after two months 
of gains, hurt by an ongoing slump in the auto industry. 
Analysts were looking for a 0.2 percent rise. 
    
    BONDS RISE 
    Canadian bond prices rose across the curve helped by the 
weaker-than-expected manufacturing data, and light trade ahead 
of the upcoming Victoria Day long weekend. 
    "Basically, traders just spent today squaring up their 
positions since there is an early bond close tomorrow," said 
Sheldon Dong, fixed income strategist at TD Waterhouse Private 
Investment in Toronto. 
    Canada has no more data due this week but a slew of reports 
are slated for release next week, including April inflation 
data on Wednesday and March retail sales figures the following 
day. 
    The two-year bond rose 9 Canadian cents to C$101.92 to 
yield 2.772 percent. The 10-year rose 32 Canadian cents to 
C$103.37 to yield 3.560 percent. 
    The yield spread between the two- and 10-year bonds was 
78.6 basis points, up from 77.7 at the previous close. 
    The 30-year bond climbed 37 Canadian cents to C$116.32 for 
a yield of 4.040 percent. In the United States, the 30-year 
Treasury yielded 4.552 percent. 
    The three-month when-issued T-bill yielded 2.63 percent, 
down from 2.68 percent at the previous close. 
 (Editing by Renato Andrade) 
 ((john.mccrank@thomsonreuters.com; +1 416 941 8083; Reuters 
Messaging: john.mccrank.reuters.com@reuters.net)) 
    
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  <CA/MMKT1> <CA/MMKT2> <CA/DEBT> <BONDS> <TREASURY> For 
related news, double click on one of the following: 
 [CAN]  Canadian news 
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Keywords: MARKETS CANADA DOLLAR BONDS 
    

Average primary bank borrowing from Fed hit record

Reuters: [2008-05-15 22:59:00]

NEW YORK, May 15 (Reuters) - Average daily borrowing by high-quality U.S. banks from the Federal Reserve rose to a record this week, surpassing the average borrowing in the week of the Sept. 11 attacks, the Fed said on Thursday.

Commercial banks' primary credit borrowings were an average $14.42 billion per day in the week ended May 14, higher than the daily rate of $11.72 billion in the Sept. 11, 2001 week, it said. (Reporting by Richard Leong) ((richard.leong@thomsonreuters.com ; +1 646 223 6313; Reuters Messaging: richard.leong.reuters.com@reuters.net )) Keywords: USA FED/DISCOUNT RECORD

TABLE-U.S. M-2 money supply up $1.1 bln May 5 week

Reuters: [2008-05-15 22:31:00]

    May 15 (Reuters) - U.S. M-2 money supply rose by $1.1 
billion in the May 5 week to $7,654.9 billion, the Federal 
Reserve said on Thursday. 
    The Fed said the four-week moving average of M-2 was 
$7,666.8 billion vs. $7,673.1 billion in the previous week. 
    Following are the details of the money supply report, and 
the Fed's H.3 and H.4 reports: 
 
    One week ended May 5 (billions dlrs) 
       Latest  Change        Prev week  Rvsd from 
M-1....1,372.5 down....7.0 vs 1,379.5.....1,379.9 
M-2....7,654.9 up......1.1 vs 7,653.8.....7,654.1 
M-2 Avg 4 wks (Vs Wk ago)..7,666.8  vs ...7,673.1 
 
Monthly aggregates (Adjusted avgs in billions) 
M-1 (April vs March)......1,368.0 vs.....1,372.0 
M-2 (April vs March)......7,677.0 vs.....7,661.5 
 
    Federal Reserve's H.3 and H.4 report: 
    Two Weeks Ended May 7 daily avgs-mlns (H.3) 
Free Reserves........rvsd..-27,217* vs.rvsd...-31,311* 
Bank Borrowings.............29,197  vs.........33,027 
Seasonal Loans..................31  vs.............22 
Excess Reserves..............1,980  vs..........1,716 
Required Reserves (Adj).....42,197  vs.........40,399 
Required Reserves...........43,024  vs.........41,542 
Total Reserves..............45,004  vs.........43,259 
Non-Borrowed Reserves......-84,192  vs........-89,768 
Monetary Base (Unadj)......829,816  vs........829,657 
*Includes Primary Dealer Credit Facility and other credit 
facility extensions amounts, not Term auction facility 
amounts. 
 
      Two Weeks Ended May 7 daily avgs-mlns 
Total Vault Cash.....rvsd...48,818  vs.........48,814 
Inc Cash Equal to Req Res...35,376  vs.........34,400 
 
             One week ended May 14 (H4.1) 
Bank Borrowings..........31,046**up...........2,838** 
Primary Credit...........14,416  up...........2,761  
Secondary Credit..............1  up...............1  
Seasonal Credit..............37  up...............1  
Float....................-1,209  up.............295  
Balances/Adjustments......7,045  down............46  
Currency................815,760  up...........1,445  
Treasury Deposits.........4,657  down...........534  
**Includes Primary Dealer Credit Facility and other credit 
facility extensions amounts. 
 
       One week ended May 14 - daily avgs-mlns 
Fed bank credit.............866,213 down.......1,417 
Treasuries held outright....520,054 down......22,341 
Agencies held outright..........nil vs..........unch 
Repos........................95,821 down......23,750 
Other Fed assets.............95,501 up........16,542 
Other Fed liabilities........43,563 up.........1,017 
Other deposits with Fed.........336 up............49 
Foreign deposits.................98 up.............1 
Gold stock...................11,041 vs..........unch 
Custody holdings..........2,278,674 down.......1,068 
 
                   Factors on May 14 
Bank borrowings..............27,905 vs........27,790 
Float..........................-337 vs........-1,739 
   ((U.S. Financial Markets, 646-223-6300)) 
Keywords: USA ECONOMY/MONEYSUPPLY  
    

TABLE-U.S. M-2 money supply up $1.1 bln May 5 week

Reuters: [2008-05-15 22:30:00]

    May 15 (Reuters) - U.S. M-2 money supply rose by $1.1 
billion in the May 5 week to $7,654.9 billion, the Federal 
Reserve said on Thursday. 
    The Fed said the four-week moving average of M-2 was 
$7,666.8 billion vs. $7,673.1 billion in the previous week. 
    Following are the details of the money supply report, and 
the Fed's H.3 and H.4 reports: 
 
    One week ended May 5 (billions dlrs) 
       Latest  Change        Prev week  Rvsd from 
M-1....1,372.5 down....7.0 vs 1,379.5.....1,379.9 
M-2....7,654.9 up......1.1 vs 7,653.8.....7,654.1 
M-2 Avg 4 wks (Vs Wk ago)..7,666.8  vs ...7,673.1 
 
Monthly aggregates (Adjusted avgs in billions) 
M-1 (April vs March)......1,368.0 vs.....1,372.0 
M-2 (April vs March)......7,677.0 vs.....7,661.5 
 
    Federal Reserve's H.3 and H.4 report: 
    Two Weeks Ended May 7 daily avgs-mlns (H.3) 
Free Reserves........rvsd..-27,217* vs.rvsd...-31,311* 
Bank Borrowings.............29,197  vs.........33,027 
Seasonal Loans..................31  vs.............22 
Excess Reserves..............1,980  vs..........1,716 
Required Reserves (Adj).....42,197  vs.........40,399 
Required Reserves...........43,024  vs.........41,542 
Total Reserves..............45,004  vs.........43,259 
Non-Borrowed Reserves......-84,192  vs........-89,768 
Monetary Base (Unadj)......829,816  vs........829,657 
*Includes Primary Dealer Credit Facility and other credit 
facility extensions amounts, not Term auction facility 
amounts. 
 
      Two Weeks Ended May 7 daily avgs-mlns 
Total Vault Cash.....rvsd...48,818  vs.........48,814 
Inc Cash Equal to Req Res...35,376  vs.........34,400 
 
             One week ended May 14 (H4.1) 
Bank Borrowings..........31,046**up...........2,838** 
Primary Credit...........14,416  up...........2,761  
Secondary Credit..............1  up...............1  
Seasonal Credit..............37  up...............1  
Float....................-1,209  up.............295  
Balances/Adjustments......7,045  down............46  
Currency................815,760  up...........1,445  
Treasury Deposits.........4,657  down...........534  
**Includes Primary Dealer Credit Facility and other credit 
facility extensions amounts. 
 
       One week ended May 14 - daily avgs-mlns 
Fed bank credit.............866,213 down.......1,417 
Treasuries held outright....520,054 down......22,341 
Agencies held outright..........nil vs..........unch 
Repos........................95,821 down......23,750 
Other Fed assets.............95,501 up........16,542 
Other Fed liabilities........43,563 up.........1,017 
Other deposits with Fed.........336 up............49 
Foreign deposits.................98 up.............1 
Gold stock...................11,041 vs..........unch 
Custody holdings..........2,278,674 down.......1,068 
 
                   Factors on May 14 
Bank borrowings..............27,905 vs........27,790 
Float..........................-337 vs........-1,739 
   ((U.S. Financial Markets, 646-223-6300)) 
Keywords: USA ECONOMY/MONEYSUPPLY