The price on treasuries fell today for two basic reasons. In part, rates were driven by the CPI. Mostly rates were driven by a sell off bonds in the European market.  European government bond yields were at five- year highs after stronger- than-expected growth reports

"We're being led by the European markets, no question about it,'' said Andrew Brenner, co-head of structured products and emerging markets in New York at Man Securities Inc., a brokerage and trading firm.

"When one market gets hit as severely as the European bond market, they're going to sell similar products in other markets,'' Brenner said, referring to bond investors.

The 10-year Treasury closed +.022% with the rate at 4.712%. At one point the 10-year Treasury was as high as 4.726% which was +.036% over Monday’s closing price.

Most of the day’s economic data was at or slightly below expectations. The CPI was the morning’s most important item. Aggregate CPI was reported at +0.4% which was just below the anticipated +0.5% to +0.6%. The more important core-CPI was at the expected +0.2%. One group estimated core-CPI to be +0.3%.

According to some analysts the ‘surprise’ in aggregate CPI was not strong enough to bring the FED to the side of lowering rates. “There's this consensus developing around the notion that the Fed is on hold indefinitely,'' said David Coard, head of fixed-income trading in New York at Williams Capital Group. “Some people had thought the Fed would ease before the end of the year, maybe they've thrown in the towel.''

The NY Empire Index was much higher than last month’s 3.8 reading which did surprise some analysts. The 8.0 reading was in the line of expectations of 8.0 to 8.5. It is hard to gauge how much the NY Empire Index influenced rates.

$67.6 billion of foreign funds were pumped into the US economy. That was higher than last months $58.5B. This should have lowered rates. The bond market ignored the data.

Another item ignored by the bond market was the National Home Builders Association Housing Market Index. This measure of home builder’s confidence fell from last months 33.0 to 30.0

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