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

To: yard_man who wrote (11262)	9/1/2004 2:38:47 PM
From: Knighty Tin	Read Replies (2) \| Respond to of 116555

Tip, I thought Rhodium was Mary Tyler Moore's best friend. <G>

To: yard_man who wrote (11262)	9/1/2004 9:29:31 PM
From: mishedlo	Respond to of 116555

Treasurys end mixed, stalling week´s rally - Wednesday, September 1, 2004 10:46:47 PM Treasurys end mixed, stalling week's rally - UPDATE 3 CHICAGO (AFX) - This week's Treasury market rally was stopped short by factory-sector data issued Wednesday that was weaker than expected but still raised some inflation red flags At the 3 p.m. U.S. close, the U.S. government's 10-year note was down a slim 1/32 to 101 even. Its yield , which moves inversely to its price, stood at a virtually unchanged 4.12 percent when compared with Tuesday's close The yield earlier grazed 4.10 percent, the lowest since the first week of April, according to Federal Reserve data. The yield is used to help determine mortgage and corporate borrowing rates. Treasurys gained early Wednesday leading up to the Institute for Supply Management report, a monthly factory-sector index that often moves financial markets. Price gains had pushed benchmark yields to five-month lows as investors reconsidered the pace with which the Federal Reserve was likely to raise interest rates in coming months The range of maturities were firmly in positive territory in the early afternoon, helped in part by demand for lower-risk bonds after reports of noxious fumes and a dozen sick people in a downtown Washington D.C. building raised terrorism fears, said Kim Rupert, a bond market analysts with Action Economics The fumes were later said to be a hoax involving pepper spray. Rupert said a series of tepid auto sales headlines around midday also helped lift Treasury prices Worse was expected Factory activity in the United States decelerated in August, the ISM said. Its index fell to 59 percent in August from 62 percent in July. The decline was sharper than the average forecast in a poll by CBS MarketWatch, conducted late last week. But a weaker-than-expected Chicago-area business report released on Tuesday left the bond market preparing for an even softer national report. New orders fell to 61.2 percent in August from 64.7 in July. The employment index fell to 55.7 percent in August from 57.3. Readings above 50 percent indicate expansion But key for the inflation-wary bond market, prices paid rose to 81.5 percent from 77. "This was a good report and it is unrealistic to expect to see manufacturing activity keep accelerating. It is already at a high level. And that is what the Fed will likely focus on," said Joel Naroff, president of consulting firm Naroff Economic Advisors While gains in the index "may not translate directly into higher inflation, the level is such that the FOMC will have another reason to keep raising rates," he said. "So, equity investors should be pleased by this report and bond buyers should be worried if they read the numbers correctly." More rate increases in the new year? Spotty economic data of late have raised questions about the likelihood of a string of Fed rate hikes over coming months. The value of fixed-income holdings tends to erode in a rising-rate environment, and Treasury yields had climbed earlier this summer as the bond market priced in a more-aggressive response from the Fed to accelerating economic growth Short-term interest-rate futures contracts show hedgers are once again pricing in slightly greater odds that the Federal Reserve's target lending rate will stand as high as 2.25 percent after the February policy meeting, up from the current 1.5 percent. This change in outlook follows Wednesday's factory data The market sees slightly better than 50/50 odds for a 2.25 percent Fed rate in February, up from a 48 percent chance priced in ahead of the ISM report. The futures contracts still reflect 80 percent odds for a quarter-point rise to 1.75 percent at the Fed's meeting this month, little changed from Tuesday's prediction. The Fed next meets Sept. 21 The near-term direction for the bond market was unclear given the strength of its rally and uncertainty surrounding the central bank's policy moves Many market participants "have been frustrated and confused regarding the [bond] market's strength," said Michael Cartine, senior Treasury analyst with IFR BondData Americas. "Certainly Tuesday's reaction to weaker-than-expected [Chicago-area] economic data was appropriate, but given a still-strong economy and a Fed still intent on raising rates, is it appropriate for December [10-year note futures contracts] to be trading into five-month highs?" "Conventional wisdom would suggest an as-expected [ISM] report invites profit taking ... but with the market levitating, any retreat in prices will be shallow and brief at best," he said ahead of the morning's data release The bond market showed little reaction to a second report on construction spending Spending on U.S. construction projects increased 0.4 percent in July after no change in June, the Commerce Department estimated Wednesday. The increase matched expectations of Wall Street economists surveyed by CBS MarketWatch. Meanwhile, the 2-year Treasury note was flat at 99 31/32, leaving its yield at 2.40 percent. The 5-year note was up 1/32 to 100 28/32, yielding 3.30 percent vs. 3.32 percent The thinly traded 30-year bond shed 1/32 to 106 16/32. Its yield stood at 4.93 percent