A few months back this blogger wrote that the bond market seemed to be looking for any excuse to buy bonds and thus drive rates lower. It appears that that trend has reversed itself. It seems now that the bond market is looking for any reason to sell, and correspondingly raise rates.

Today was one such example. There were six items published today. Even though most of the economic items came in as expected, three did not. Of the three, two were lower than expected and should have moved rates lower.

Instead, the bond market concentrated on the one item that was worse for rates; the Chicago PMI. The Chi-PMI was predicted to be 54.0 to 54.5, but it was published at 61.7. This look at what purchasing managers are doing indicates an economic turnaround. That would not be good for rates.

The bond market moved rates up shortly after that. The 10-year Treasury moved up to 4.921% shortly after the release of Chi-PMI. That was .043% in nest day trading.

What the bond market ignored proves our concern of a higher rate sentiment. The GDP Report is more important economically speaking. It was predicted to be +0.7% to +0.8%. It was only +0.6%. That should have moved rates lower, and did only a small amount at the market’s opening. The lower GDP moved rates down to 4.866%, which was -.012%.

The other part of the GDP report returned as expected. The Chain-deflator was predicted to be +4.0% and was exactly 4.0%.

The weekly Initial Jobless Claims was forecast to be at 310k to 315k and came in at 310k.

Construction Spending was +0.1% which was in the range of the predictions of +0.1% to -0.2%.

Help-wanted Index is often not paid attention to, which was too bad this month. It was anticipated to be 30.0, but was at 29.0.

It is possible that the low GDP eventually got traders and investors attention. Bonds moderated some in the afternoon. The 10-year Treasury closed +.012% with the yield at 4.890%.

SHORT-TERM OUTLOOK [25 May 2007]

Friday is the publication of the Employment Report, Personal Income and Spending, ISM, and finally, Pending Home Sales. This has got to be one of the busiest days in the last few years.

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