Nearly all of yesterday’s price loss, and corresponding rate increase have been reversed. In early morning trading the price and rate reversal was even greater.

The bond market opened with the release of Personal Income & Spending. Both were a surprise to the market. Personal Income was supposed to be +0.6% across the board. While higher than last month’s +0.1% the reported +0.4% was lower than what the market was thinking it would be. Personal Spending was also below the forecast +0.7%. It equaled last month’s +0.5%.

A portion of the report is the PCE (Personal Consumption Expenditure). This is the inflation gauge that the FED follows the most; which of course makes it very important. While it was in the slim range of predictions of +0.1% to +0.2%, it was at the low end +0.1%.

The three combined to bring the 10-year Treasury to the day’s low of 5.045%. This was -.073% lower than yesterday’s close.

Rates were moved a bit higher around 09:00cdt {14:00gmt} release of the Michigan Consumer Sentiment, the Chi PMI and the Construction Spending reports. All three were above the predicted levels.

The Chicago PMI (actually out at 08:45cdt {13:45gmt}) was predicted to be 57.5 to 59.9. Only one source was the high prediction of 59.9, the next highest was 58.0. The National Assoc. of Purchasing Managers published its index at 60.2.

Construction Spending was mostly forecast at +0.2%, one was +1.0%; again, the same source. Construction Spending was reported at +0.9%.

The revised Michigan Consumer Sentiment was also stronger than the anticipated 83.7 to 84.0. The U of Michigan reported its index at 85.3.

While those three were above the forecasts they were not able to maintain an upward direction. In mid-morning, the 10-year Treasury has settled around 5.081%, -.037%.

SHORT-TERM OUTLOOK [29 June 2007]

We have seen some volatility of late as bond traders and investors attempt to find their footing. Any important data will give them reason to feel around even more.

It trading range has seemed to emerge around the 5.100% level on the 10-year Treasury. The floor is around the psychological 5.000%. The ceiling looks as if it is just above the Fed Funds rate at 5.250%. The recent high occurred on 12 June at 5.297%. The low around 5.080% has been tested on a few occasions in the short-term. Most recently was the day of this outlook.

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