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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (735)	2/26/2004 12:31:33 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Treasuries Fall as Durables Orders Exluding Transportation Rise 2 Percent Feb. 26 (Bloomberg) -- U.S. Treasury 10-year notes declined after orders for durable goods showed business investment the past two months was stronger than economists had estimated, suggesting companies may boost hiring. Traders also drove Treasuries lower as the dollar rallied to an almost three-month high against the yen, fueling speculation Japan's central bank will scale back dollar purchases as a way of weakening its own currency. The bank has been buying dollars in record amounts and investing them in U.S. government debt. ``We're optimistic you're going to see some improvement'' in jobs, said Patrick Maldari who helps manage $5.8 billion of fixed- income at Merrill Lynch Investment Managers in Princeton, New Jersey. ``We continued to reduce exposure'' to Treasuries as yields fell more than 0.3 percentage point since early January. Job growth has been below forecasts for the last three months. The benchmark 4 percent note maturing in February 2014 fell more than 3/16, or $1.88 per $1,000 face amount of debt, to 99 21/32 at 11:17 a.m., according to Deutsche Bank. The yield rose 3 basis points to 4.04 percent. A basis point is 0.01 percentage point. During the past two days the yield fell as low as 3.996 percent. It hasn't been lower than about 3.92 percent this year. The government's new two-year note, auctioned yesterday and maturing in February 2006, yielded 1.68 percent. Orders for durables -- items made to last at least three years -- rose 2 percent in January excluding transportation goods, the biggest increase since October, the Commerce Department said. Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 3.6 percent last month after rising 3.8 percent in December. Speculation on Rates Speculation about job growth hurts Treasuries as investors anticipate increased consumer demand, which could fuel quicker inflation and lead the Federal Reserve to raise its 1 percent target interest rate. The economy has shed 2.3 million jobs since President George W. Bush took office. The durable goods statistics were ``very, very strong numbers,'' said Bill Quan, director of research at Mizuho Securities USA Inc. in Hoboken, New Jersey. The firm is one of 23 primary dealers that are obligated to bid at Treasury auctions and trade with the Fed's New York branch. Along with gains in the dollar, ``it says that Treasury yields probably push higher'' over the next week, rising above 4.10 percent, Quan said. The economy is forecast to grow 4.6 percent this year, which would make it the strongest year in two decades, according to the median estimate among economists in a Bloomberg News survey earlier this month. Dollar-Yen The U.S. currency rose to 109.59 yen from 108.99 yesterday, reaching its strongest since early December. Earlier this month it fell as low as 105.17, its weakest in almost three years. Japanese Finance Minister Sadakazu Tanigaki today said the government is ready to take ``appropriate action'' to prevent a two-year rally in the yen from quashing the economy's revival after three recessions in 12 years. ``Those who had bought bonds earlier thinking that central bank buying will continue forever, are now seeing their assumption is no longer true,'' said Michael Cheah, who manages $2 billion in bonds at AIG SunAmerica Mutual Funds in Jersey City, New Jersey. ``A stronger dollar means less need for BOJ foreign exchange intervention and that in turn means less new money to buy Treasuries.'' The Bank of Japan sold yen at least once this week, said traders who deal with the BOJ and asked not to be identified. The central bank sold a record 7.15 trillion yen ($65.5 billion) in the four weeks through Jan. 28. The Ministry of Finance will release February sales figures tomorrow. Three-Month Rally Japan has raised its Treasury holdings for 14 months to $545.2 billion in December, and is the largest foreign holder of Treasuries. Japan's Finance Ministry may say tomorrow the country spent about $28 billion of its currency this month, or about half what it spent in January, to stem the yen's gains, WestLB said in a research note. Treasuries are still poised for a third straight monthly advance, the longest since September 2002. Sluggish job growth and tame inflation have boosted Treasuries in recent months. Core inflation rose 1.1 percent for 2003, the smallest annual jump in 43 years. In a sign investors don't see a rate increase until later this year, September Eurodollar futures contract yield 1.425 percent. Eurodollar futures gauge the expected three-month lending rate, and their yields have averaged 24 basis points higher than the Fed's target rate during the past 10 years. Jobs Forecast The economy probably added 140,000 jobs in February, after a 112,000 increase in January, according to the median forecast from 19 analysts surveyed by Bloomberg News. Such a gain would be the biggest back-to-back increase since the end of 2000. Treasury losses may be muted by end-of-month buying by bond fund managers, who need to adjust their holdings in line with market benchmarks. Lehman Brothers Holdings Inc. tomorrow afternoon will rebalance its U.S. Aggregate Bond Index to drop maturing bonds and add newly issued bonds, including Treasuries. The Lehman index, the most widely followed measure of performance in the global bond market, includes almost 6,800 different bonds totaling $8.25 trillion in value. Among them are 110 Treasuries with an average face amount of $1.49 billion. ========================================================== Amazing the opposite conclusions that people come to when looking at the same data Mish