The bond market is seeing some very heavy selling this morning. When bonds sell, that is bad for rates. The yield on the benchmark 10-year Treasury is above the 5.000% level. That is the highest it has been since August of 2006. In mid-morning trading the 10-year Treasury is -21/32 with the price at 95&22/32. This has moved the rate up to 5.078% which is .108% over yesterday’s close.

There is little economic data pushing rates in this direction. Analysts are crediting foreign markets for impacting rates (nuking rates would be a better description).

There was heavy selling of German bonds, as well as other overseas government bonds overnight. This selling was based on the idea that interest rates in many nations would stay at their current level, or head higher.

The ECB European Central Bank surprised foreign markets yesterday by increasing its equivalent of our Fed Funds rate by .25% to 4.000%. To make matters worse, ECB chief Jean-Claude Trichet made remarks viewed as signaling further rate hikes are ahead.
New Zealand added to the impression that rates around the world are on an inevitable upward trajectory Thursday, by also making an unexpected rate hike. "The surprise rate hike in New Zealand kept tighter monetary policy firmly in the spotlight," said research firm Action Economics.

Leslie Wines of MarketWatch said that, “investors will be watching to see if the benchmark yield, which is used to set mortgages and corporate bond rates, creeps up to the 5.25% level in coming sessions.”

There have only been two economic items this morning, and both came in near the expected, or close to expectations.

The first out was the weekly Initial Jobless Claims. This measure of first time unemployment filers was predicted to be 310k to 315k. The Labor Department counted up 309k layoffs last week. That is only a little below expectations, and last weeks 310k. This is an inverse indicator; a lower than predicted is bad for rates, and vice versa. This could account for only a very small portion of today’s rate move as it is such a small if not insignificant amount below predictions.

Wholesale inventories were published at 09:00cdt {14:00gmt} and is also an inverse indicator. It came in as expected however, so should not influence rates. Analysts were anticipating a +0.3% to +0.4% reading, and it was +0.3%.

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