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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: laura_bush who wrote (447714)	8/25/2003 6:08:50 PM
From: Hope Praytochange	Respond to of 769667

Bonds Floored by Record Housing Strength By REUTERS Filed at 5:26 p.m. ET NEW YORK (Reuters) - U.S. Treasuries fell prey to a still-robust housing market on Monday, with prices tanking and yields climbing closer to one-year highs as investors learned that home sales had jumped to a record high in July. In a summer holiday-thinned market, traders began dumping government debt after a report showing a 5.0 percent spike in existing home sales for July to a record annual 6.1 million pace, well above forecasts of 5.94 million. The figures reaffirmed expectations of a strong economic recovery, though last month may have marked a peak for the red-hot housing market as Americans rushed to buy before interest rates became too high. ``Housing seems to be strong but people are buying houses in anticipation of much higher mortgage rates,'' said Frank Hsu, director of global fixed income at Fimat. The drop in bond prices was compounded by trading in the futures market, where key technical levels activated another round of selling. Longer-term debt bore the brunt of the losses, causing the yield curve to steepen -- the gap between two- and 10-year yields widened slightly to 257 basis points from 255 -- unwinding some of the flattening trade that dominated last week. GROWTH-WARY BONDS With the economy poised for a solid rebound in the second half of the year, investors were bracing for even more bond-unfriendly upside surprises from the rest of the week's data, which include a revision of gross domestic product and regional manufacturing numbers. That prospect chipped away the Treasury market's early gains and by the afternoon the 10-year note (US10YT-RR) had shed 13/32 in price for a yield of 4.53 percent, up from 4.48 percent. The 30-year bond (US30YT-RR) sank 20/32, taking its yield to 5.30 percent from 5.26 percent, while the five-year (US5YT-RR) eased 7/32 to yield 3.51 percent from 3.46 percent. Two-year note yields (US2YT-RR) climbed to 1.97 percent from 1.92 percent. The Treasury holds an auction of two-year paper on Wednesday, expected to amount to $25 billion, and traders will be inclined to cheapen the issue into the sale. Short-term yields leapt last week as robust economic data stirred speculation the Federal Reserve would begin its next tightening cycle earlier than previously thought. The Fed has gone out of its way to assure markets that it would take several quarters of above-trend growth before inflation would become a concern, but that has not stopped the futures market from pricing in a hike for the first quarter of next year. Kenneth Hackel, chief U.S. fixed income strategist at Merrill Lynch, thinks the market is being far too premature, noting that during the last ``jobless recovery'' in 1990-1991, the Fed waited nearly 16 months between the last rate cut and the first rate hike. Nevertheless, he suspects yields have further to rise while the curve steepens once more. ``If the data remains strong over the next few months as we expect, front-end yields could easily rise to 2.25 percent or higher,'' said Hackel. ``It would not surprise us to see 10-year yields breach 5 percent before year-end.'' Fed officials will have another chance to calm investors when the Kansas City Fed hosts its annual symposium for central bankers on Thursday to Saturday. Fed Chairman Alan Greenspan talks on Friday and the topic of ``Monetary Policy and Uncertainty'' could allow him to address the market's concerns.