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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (35582)	6/9/2008 5:43:17 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 218167

Fed finally getting serious about tightening.? This is NOT good news for gold if they follow through. Two-Year U.S. Notes Drop Most Since 1996 on Fed Rate Outlook By Sandra Hernandez and Anchalee Worrachate June 9 (Bloomberg) -- Treasuries fell, pushing yields on two-year notes up the most in 12 years, on growing speculation policy makers in the U.S. and Europe will raise borrowing costs this year to damp accelerating inflation. Two-year notes, which are more sensitive to changes in the central bank's interest-rate policy, tumbled after New York Federal Reserve President Timothy F. Geithner said following a speech in New York today ``tighter monetary policy'' may be needed globally. U.K. debt dropped the most in a decade after a report showed U.K. producer-price inflation accelerated to the fastest pace in two decades. ``People are waking up to a more hawkish rhetoric from the Fed,'' said Dominic Konstam, head of interest-rate strategy at Credit Suisse Securities USA LLC, one of the 20 primary dealers that trade with the U.S. central bank. ``It's mainly thinking about the central banks shifting gears a little bit, being much more hawkish on inflation.'' Two-year yields rose 33 basis points, or 0.33 percentage point, to 2.71 percent at 4:45 p.m. in New York, according to BG Cantor Market Data. The 2.625 percent security maturing in May 2010 fell 5/82, or $6.25 per $1,000 face amount, to 99 27/32. Ten-year yields rose 8 basis points to 3.99 percent. Yields on two-year notes touched 2.74 percent, the biggest one-day increase since March 1996, when they rose 36 basis points as faster-than-expected job growth dimmed prospects for the Fed to keep lowering interest rates. Two-year yields rose to within 128 basis points of 10-year yields, the smallest gap since Jan. 17. The spread reached a 4 1/2 year high of 207 basis points on March 6. Gains Erased Today's slump by two-year notes more than wiped out their gains on June 6, after the Labor Department said the economy lost jobs for a fifth straight month and the unemployment rate rose to 5.5 percent from 5 percent. Two-year yields dropped 12 basis points that day. Yields on two-year notes have doubled since hitting their low of the year on March 17. Between then and June 6, U.S. government bonds handed investors a loss of 2.8 percent, according to Merrill Lynch & Co. bond indexes. ``Inflation around the world has become a bigger concern over the last few weeks,'' said Andrew Harding, who helps manage $18 billion as chief investment officer for fixed income at Allegiant Asset Management in Cleveland. ``There's much better value in non-Treasury bonds.'' Benchmark European notes also slumped. The yield on the U.K. two-year note rose 33 basis points, the most since August 1998, to 5.37 percent, the highest level since Sept. 5. The yield on the two-year German note jumped 5 basis points to 4.68 percent. Trader Bets Futures on the Chicago Board of Trade show a 38 percent chance the Fed will raise the 2 percent target rate for overnight lending between banks by a quarter percent at its Aug. 5 meeting, four times the likelihood seen at the end of last week. The futures show an 87 percent chance the Fed will increase the rate by at least a quarter-percentage point by December, compared with 63 percent odds at the end of last week. European Central Bank President Jean-Claude Trichet reiterated in a speech in Paris today that policy makers may raise their benchmark rate next month to ensure price stability. Fed Chairman Ben S. Bernanke, who will speak on inflation at a Boston Fed conference at 8:15 p.m. local time, said in a speech June 4 the U.S. central bank is ``attentive'' to the dollar's decline and will guard against a jump in inflation expectations. `Inflation Key' The New York Fed's Geithner said in reply to audience questions after a speech that ``demand is slowing'' in the U.S. and a ``very large sustained rise'' in prices will probably prompt central banks to pursue ``tighter monetary policy.'' Dallas Fed President Richard Fisher, in an interview with CNBC, agreed higher interest rates may be needed to offset global inflation. The Labor Department report on June 13 may show consumer prices increased 0.5 percent in May after a 0.2 percent gain in April, according to a Bloomberg News survey. ``Inflation continues to be the key here'' as Treasury traders anticipate the government's report on consumer prices this week, said T.J. Marta, a fixed-income strategist in New York at RBC Capital Markets, the investment-banking arm of Canada's biggest lender. He spoke in a Bloomberg Television interview. 10-Year Auction The 10-year note will ``underperform'' this week as traders anticipate the Treasury Department's $11 billion auction of the securities on June 12, Marta added. If European policy makers are ``actually going to be tightening as early as the next one or two months, that puts pressure on our Fed not to be able to reduce rates,'' said Thomas di Galoma, head of U.S. Treasury trading at Jefferies & Co., a brokerage for institutional investors in New York. ``They're worried about the dollar weakening.'' Lower interest rates relative to Europe can reduce demand for U.S. assets because investors receive lower returns on dollar deposits. Investors remained the most bearish this year on U.S. government bonds, Ried, Thunberg & Co. said. The firm's sentiment index stayed at 44 in the seven days ended June 7. A reading below 50 means investors anticipate lower prices. The 33 fund managers surveyed by the Jersey City, New Jersey, research company manage a combined $1.42 trillion.