Posted on 11/29/2007 12:04:05 PM PST by Moonman62
NEW YORK (AP) -- Treasury prices rallied Thursday, pressing the benchmark 10-year note yield back below 4 percent, after weak labor and housing reports kept hope alive that the Federal Reserve will cut rates again soon.
Prices leapt higher after the Labor Department said weekly jobless claims surged to a 10-month high the week of the Thanksgiving holiday, rising by 23,000 to 352,000.
"This is the clearest possible signal of a further marked slowing in payrolls and a higher unemployment rate," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Although the weekly jobless claims data are extremely volatile, the numbers added fuel to the case that the Fed will need to cheapen the price of money to revitalize an economy bogged down by severe housing and credit issues. Weak economic reports also benefit Treasurys by instilling a preference for secure assets.
Separately, the Office of Federal Housing Enterprise Oversight said home prices fell 0.4 percent in the United States in the third quarter, the first quarterly prices drop in 13 years. The latest new home sales report showed a 1.7 percent increase for October, but that gain was against a September level that was revised sharply lower.
Investors this week apparently believe that the Fed, which already has slashed the Fed funds target 0.75 percentage points this fall, will cut once more at its Dec. 11 monetary policy meeting. In fact, according to Action Economics, market players are no longer debating whether there will be a rate reduction, but have turned their attention to whether the reduction will be 0.25 percentage points or 0.50 percentage points.
The benchmark 10-year Treasury note rallied 1 2/32 to 102 25/32 with a yield of 3.91 percent, down from 4.05 percent late Wednesday. Prices and yields move in opposite directions.
The 30-year long bond rose 2 full points to 111 10/32 with a yield of 4.32 percent, down from 4.43 percent late Wednesday.
The 2-year note gained 7/32 to 100 6/32 with a yield of 3.02 percent, down from 3.19 percent.
Treasury price gains accelerated after the stock market, which advanced in morning trade, faltered in the early afternoon. The government bond market tends to perform well when investors are wary of stocks, which carry higher risk levels.
In addition to the rate cut hopes, Thursday's rally was fed by heavy foreign demand as overseas investors reacted to volatile conditions in the credit markets and global banks attempted to shore up balance sheets saddled with weak mortgage assets ahead of the year's end.
"Foreign investors are snapping up the world's safest debt." said Kevin Giddis, managing director of fixed income at Morgan Keegan.
An afternoon auction of $13 billion in new 5-year notes attracted fairly strong foreign demand, although U.S. participation was a bit weak.
a 23,000 increase in Jobless claims,( most likely the normal seasonal worker layoff) is no "clear signal" of anything in country of 300,000 million people. This is a clear example of too many "chiefs" however. We need to "lay off" some of these self important government departments.
LLS
Why izzit that bad news for the economy is good for bond markets and vice versa?.................
“Foreign investors are snapping up the world’s safest debt.”
But, but...oh, never mind.
Let’s see, bond are good as safety, but don’t offer good returns compared to stocks, especially those with dividends. Forward P/Es are low, even with the lower guidance coming out, that’s good for stock valuations. Lower rates cut business costs, and even the 10-year bond is dropping now, lowering fixed mortgage rates. The dollar is firming even as lower rates are baked into the cake. By spring, the write-offs from the banks will be out and quatified. The Euro is too high, and becoming deflationary. Pressure is mounting on European rates, if they lower, their markets will be stronger.
The question is not whether to be in stocks, the question is allocating between US and world markets for optimum returns. I should add that I have a long-term investment horizon (10 years).
The subprime losses are discounts, not 100% writeoffs.
Why izzit that bad news for the economy is good for bond markets and vice versa?.................
When the economy slows, interest rates are lowered to bolster business and consumer credit. Lower interest rates cause bonds already owned to appreciate (short answer). Your 5% bond is worth more if new ones are being offered at only 4%. Higher rates (yields on bonds) hurt the value of bonds already owned. Your 5% bond loses value if a new bond can be purchased at 6%.
But they are a good liquid way to preserve capital in times of uncertainty.
Lower rates cut business costs,
Absolutely, but the Fed still considers it inflationary.
and even the 10-year bond is dropping now, lowering fixed mortgage rates.
The problem there is the risk spread which is preventing the benefit of lower rates getting to consumers and businesses.
Pressure is mounting on European rates, if they lower, their markets will be stronger.
They never should have raised rates in the first place, especially with their unemployment rates. But they are like the Fed in that they incorrectly believe that economic growth causes inflation.
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