Tuesday, 06/26/07, 5:00 PM EDT :
Weak economic data failed to propel bonds to a win and falling oil prices failed to keep stocks aloft today. The approach of the Fed meeting weighed against both markets. In late trading, the 10-Year Treasury Note was down by 2/32, holding its yield to 5.09%; the Dow was down by 14.39 points to 13,337.66; and the Nasdaq was down by 2.92 points to 2,574.16.
The report on new home sales indicated a decline last month but the move was small and followed a sharp increase in April. The Consumer Confidence Index for June was weaker than anticipated but the news was overlooked this morning by bond traders who were concerned with new supply coming to market.
Today's 2-Year Treasury Note auction was mildly successful. Bids exceeded the $18 billion offer amount by 2.80 to 1, up from last month's bid-to-cover ratio of 2.53 and above the average of 2.68 for the twelve such auctions preceding today's. Noncompetitive bids, a gauge of individual investor demand, totaled $865 million, down from last month's $938 million and below the twelve-month average of $894 million. Yet, as a percentage of the offer size, noncompetitive bids totaled 4.8%, a little higher than the 4.5% average of the last twelve auctions, though down from last month's 5.2%.
Foreign demand for the issue was tepid. Indirect competitive bids, which include those from foreign central banks, received 28.8% of all accepted competitive bids and 27.4% of the entire issue. This was up from last month's award percentage of 21.7% but below the twelve-month average of 33.3%.
Treasuries had been down slightly prior to the auction and remained so in afternoon trade as well.
Stocks gyrated as some traders were lured by bargains following recent losses while others were more defensive in front of this week's Fed deliberations. While the economic data released today pressured the market, retreating oil prices lent support. The price of a barrel of light, sweet crude oil for August delivery fell by $1.41 on the New York Mercantile Exchange to settle at $67.77, the lowest close for a front-month contract in eight sessions. Yesterday's close was the highest in ten months.
After several course changes throughout the day, the indices finished with mild losses. The Dow and Nasdaq both edged down by 0.11% while the S&P 500 lost 0.32%. In the last seven sessions, the Dow has fallen in five and closed down today by 301.82 points from where it closed on the 15th.
Tomorrow, the only major news release is the report on durable goods orders for May. Durable goods are defined as items meant to last three years or more. They are usually labor-intensive to produce, expensive, and therefore often financed. Consequently, the trend in orders provides some insight regarding upcoming production activity and the effect interest rates may be having on the process.
In the last report, the Commerce Department said orders rose by 0.6% in April. This was subsequently revised to a gain of 0.8% in the factory orders report. This followed a spike of 5.1% in March. For May, the order level is expected to have fallen off by between 1.0% and 2.0%. Much of the decline is expected to come from the category of transportation because aircraft orders reportedly slumped last month.
Because transportation orders are so volatile, the level of orders excluding the category will also be closely watched. Orders excluding the defense sector will also get close attention since defense needs are not governed by standard market forces. Another important category is non-defense capital goods minus aircraft. Orders there are seen as a gauge of core business demand for capital goods.
Supply will continue to be a concern tomorrow as the Treasury will be selling $13 billion in 5-Year Notes. May's auction had mixed success. Overall demand was strong with a bid-to-cover of 2.60, the highest for that security since last September. Individual demand was also strong. Non-competitive bids totaled $186 million, the largest amount since last August. But foreign demand was weak. Indirect competitive bids received 19.3% of the issue, down from 38.2% in April's auction and below the 29.5% average for the twelve auctions preceding last month's.
