Yields on the 10-year Treasury touched near the 5-year high as concerns increased that faster global economic growth will hurt demand for fixed-rate investments. In short, the bond market is beginning to realize that there will probably not be any rate cuts soon.

Like Thursday, the primary driver for rates was foreign markets. It appears that several economies over both seas are improving. That means, “In the next few years, foreign money will be moving from bonds, at the margin, to more growth-like, equity-like investments,'' Bill Gross, chief investment officer at Pacific Investment Management Co. and manager of the world's largest bond fund, said on CBNC yesterday. ``If they're moving in that direction, why shouldn't we?''

As they move money out that brings the price of bonds – and mortgage backed securities – lower. As price goes down, rates move up.

To make matters worse several holders of MBS sold their bonds as a hedge against raising mortgage rates.

The only economic data should have helped bonds some as the Trade Balance slipped to $58.5B. That was lower than last month’s $63.9B, and below the expected $63.0B to $64.0B.

Bonds could have closed worse. At the opening rates on the 10-year Treasury were +.077% over Thursday already high rates, moving the opening yield to 5.176%. About one hour into trading the yield move to the days high of 5.181%, or +.082%.

Later in the day traders begin to believe that the selling may have been excessive and did some bargain shopping. The 10-year Treasury closed up a scant +.019% to yield 5.118%.

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