Prices on bonds reversed direction in mid-day trading as a response to funds flowing into an active stock market. Prices were higher at the opening, making the rate, which always moves in the opposite direction from rates. The 10-year Treasury was -.018% to 4.630% within the first ten minutes of trading.

As money moved from bonds to equities the price on the bonds fell. That is true on any commodity. As less money (demand) chases the same amount of any given commodity (supply) the price of that item goes down. In the case of bonds the price going down causes rates to go up. The 10-year Treasury is currently +.026% with the rate at 4.674%.

The lower prices this morning were due to this morning’s economic data coming in at or under the expectations.

Retail Sales were anticipated to be +0.3% to +0.6%. This was probably the biggest surprise by coming in at -0.2%. The more important core-Retail Sales was also below the expected +0.4% to +0.6%. When Retail Sales exclude auto sales the core amount was 0.0%.

Prices at the wholesale level also impressed bonds. PPI was +0.7’ which was in the range of the +0.5% to +0.7%. Once again the core-PPI was below forecast at 0.0%. The market was looking for core-PPI to be +0.2%.

Odd thing is, it analysts are saying it is this good inflation news drive stocks. Stock traders are of the belief that less inflation will be good for interest rates, but there activity is bad for rates.

Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com