Two-Year Note Sale Draws Slim Interest
Treasury prices fell heavily for much of the post-Christmas session, dragged by the dead weight of $22 billion in new two-year notes that drew only tepid demand at auction.</br></br>The only short-lived boost for Treasurys yesterday came from the early release of weak figures on house prices, and evidence of declining regional business activity.</br></br>The 10-city composite reading of Standard & Poor's/Case-Shiller indexes declined 6.7% in October -- the biggest monthly decline in existing single-family homes on record. Weakness in housing is hardly a new story, but the market reaction was exaggerated by meager trading volumes, and the compounded impact of a weak Richmond Federal Reserve survey of regional business activity.</br></br>December's release showed the bank's manufacturing index falling to -4 from zero in November. The services sector reading reflected a slight improvement in this dominant area of the economy, rising to zero from -2 in November. But even holiday shopping did little to improve matters in the region's retail sector, which continued to contract in December.</br></br>The impact had worn off by late morning, however, and prices were heading back down in the lead up to the 1 p.m. EST auction of two-year notes. It's hardly a good time of year for aggressive bidding, but the recent liquidity concerns were expected to ensure reasonable demand for the sale.