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

To: mishedlo who wrote (17227)	11/30/2004 3:09:58 PM
From: CalculatedRisk	Respond to of 116555

OK, I have been a bond bull (or neutral) for most of this year. I am officially a bond bear now. I think we will see both a weakening economy and rising interest rates ...

To: mishedlo who wrote (17227)	11/30/2004 3:17:44 PM
From: Chispas	Read Replies (1) \| Respond to of 116555

Mish, on that same page of CBSMW, confirming story .... BOND REPORT Treasurys fall, driving key yield higher Impact from bond-positive drop in confidence is fleeting By Rachel Koning, CBS.MarketWatch.com Last Update: 2:22 PM ET Nov. 30, 2004 CHICAGO (CBS.MW) - Treasurys fell for a fifth day, sending benchmark yields to nearly four-month highs Tuesday, as mixed U.S. economic data did little to dissuade most bondholders from bets on stronger U.S. growth going forward and gradually rising U.S. interest rates. "The common theme with this morning's U.S. economic data is that prospects for U.S. output growth remain notably robust despite mixed consumer reactions and market developments since the U.S. elections," said Mike Englund, chief economist at Action Economics. A rising rate environment makes bonds already in circulation less attractive to investors, while stronger economic growth tends to raise concerns for higher inflation, which eats away at the fixed returns on bonds. The closely tracked 10-year note was down 11/32 in afternoon trading, at 99 2/32. Price declines lifted its yield ($TNX: news, chart, profile) to 4.37 percent, its highest since the first week of August, from 4.32 percent Monday. Treasury losses were slashed briefly in the wake of a report that showed the Conference Board's consumer confidence index fell unexpectedly this month. U.S. consumers became more cautious for a fourth straight month. The latest index fell to 90.5 from a revised 92.9 in October. The bulk of the decline came from the expectations index, which slipped to 87.4 from 92.2. This is the lowest level since July 2003. See Economic Report. The bond market showed little reaction to a Chicago-area report that showed business activity continued to expand this month. The report also included evidence of price acceleration, which is bad news for inflation-wary bond investors. See Economic Report. Fed rate-hike predictions were bolstered by another report Tuesday that showed the U.S. economy grew at a 3.9 percent annual rate in the third quarter, slightly faster than the 3.7 percent estimated a month ago. See Economic Report. Financial markets are fairly confident the U.S. central bank will nudge its current 2 percent lending target to 2.25 percent when its interest-rate panel meets on Dec. 14. The Fed has already raised rates four times this year. Most economists are in agreement that a rate hike next month is in the cards, although the Fed has sometimes skipped the December meeting during a rate-tightening cycle, fearing a hike at that time could dampen holiday spending. In expectation for rising rates, the 10-year yield has risen nearly 0.40 percentage points over the past month, its largest one-month gain in over six months. Treasurys have fallen over the past several sessions as an ever-weakening dollar sparked speculation that foreign central banks might lighten holdings of dollar-denominated investments. U.S. debt also continues to yield less than its European equivalent. In fact, the difference in yield between a 10-year Treasury and a 10-year euro-denominated note is at its widest in more than four years. If U.S. economic growth is outpacing Europe, bond investors will demand more yield for taking on U.S. debt. Rising yields mean bonds already in circulation lose value. Rachel Koning is a reporter for CBS.MarketWatch.com in Chicago.