Thursday, 14 June 2007

Bonds rebound

Reuters reports:

U.S. government bond prices rebounded on Wednesday, with the benchmark 10-year Treasury note posting its best day since March technical factors and reduced selling by mortgage players after Tuesday's rout.

Benchmark yields, however, stayed near five-year highs as investors no longer expect the Federal Reserve to cut interest rates this year. Bonds brushed aside strong retail sales and inflation reports.

Investors drew some comfort from the Fed's Beige Book, which reported that overall wage pressures had not increased, but noted there were "significant" price increases for energy-related products.

Economic data earlier in the day, however, had been somewhat on the hot side. From another Reuters report:

Sales by U.S. retailers rose 1.4 percent, more than twice as much as expected, as consumers shrugged off higher gasoline prices and a housing slump to spend more on cars, clothing, building materials and electronics, a Commerce Department report showed on Wednesday...

U.S. mortgage applications rose last week for the first time in three weeks even as interest rates rose to their highest in nearly a year, the Mortgage Bankers Association said on Wednesday...

U.S. import prices rose 0.9 percent in May where Wall Street economists were expecting a 0.3 percent gain. Imported petroleum prices climbed 2.7 percent in May, the fourth straight monthly gain, after a 6.6 percent rise in April.

Elsewhere in the world, China also reported strong retail sales in May, which rose 15.9 percent from a year earlier.

However, Japan revised its April industrial output data down to show a 0.2-percent decline from the previous year from a preliminary 0.1-percent decline while industrial production in the euro area in April fell 0.8 percent compared to March.

Nevertheless, a rebound in bonds is not likely to be sustained for very long. The global economy generally still looks relatively robust so the trend in bond yields is still probably up, although it is possible the sharpest move is behind us.

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