Your Economy (No Politics)

[Bullwinkle]

US Treasuries ease on strength in Chicago PMI data
Wed Nov 30, 2005 12:23 PM ET


NEW YORK, Nov 30 (Reuters) - U.S. Treasury debt prices
slipped on a survey showing Midwestern businesses enjoyed
strong conditions last month while paying much higher prices, a
reading that trumped benign inflation data released earlier.

The Chicago PMI survey came in at 61.7, compared with 62.9
in October and economists' expectations 60.0. The prices paid
index surged to 94.1, a 26-year high, from 79.6 in October.

Benchmark 10-year Treasury notes dipped 5/32 in
price for a yield of 4.50 percent versus 4.48 percent on
Tuesday.

Two-year notes were down 1/32 for a yield of
4.42 percent.

The five-year note eased 3/32 to yield 4.43 percent, from
4.40 percent on Tuesday. The 30-year bond was down 7/32 for a
yield of 4.70 percent.

"The talk in the (bond) market will be about the prices
paid number. What matters to the market is whether we start to
see more upward pressure in the core rate of inflation. The
next four months will be critical in determining how the Fed
proceeds."

Aside from the sharp jump in prices in the Chicago PMI
data, which economists attributed to high oil and natural gas
prices, underlying core inflation excluding food and energy
appears to be under control for now.

Early on Wednesday, bond bulls were encouraged by an easing
in the quarterly measure of personal spending excluding food
and energy, the Federal Reserve's favorite price measure.

The absence of serious inflation pressure suggests that
fixed-income investments will hold their value over time, and
therefore attracts more buyers into the bond market.

Growth in the core PCE softened to an annual rate of 1.2
percent from the earlier reported 1.3 percent.

The prices indexes "looked good, and that's a huge thing
for the market. ... The bond market is much more focused on
what's happening to the economy now," Mary Ann Hurley, vice
president of fixed income trading at D.A. Davidson & Co. in
Seattle.

Wednesday's inflation data were part of a report on
third-quarter U.S. gross domestic product growth. The
government's second reading showed that growth jumped to 4.3
percent last quarter from 3.3 percent in the second quarter.
That was above forecasts for 4 percent growth and well above
the initial estimate of 3.8 percent growth.


© Reuters 2005