The price of Treasuries fell in response to foreign events, technical factors and a stronger than predicted domestic job market.

A rebound in the prices of European and Asian stocks, and a response to strength in emerging-market bond markets, is causing some selling of US bonds. This overseas strength suggested domestic and foreign investors are reducing their demand for the safety of US government debt.

Bonds also moved lower in price due to technical factors. As bonds tested the trading floor yesterday (see short-term Outlook), some traders took profits overnight and the opening today.

Traders and investors also responded to an apparently stronger than expected labor market. First-time claims for jobless benefits unexpectedly fell last week to the lowest in two months, a sign that the U.S. labor market remains resilient. The weekly Initial Jobless Claims was predicted to be 310k to 315k. The Labor department reported that 301,000 employees filed for first-time unemployment insurance. As an inverse indicator, a number below expectations indicates a stronger sector of the economy. Good for the economy = bad for rates.

The rate on the 10-year Treasury was 5.047% or, +.037% shortly after the opening.

The bond market had some response to two economic items released in mid-morning. The first, the Leading Economic Indicators was below the anticipated +0.1% to -0.1%. The LEI was -0.3%.

Analysts were looking for the Philadelphia Fed Index to be 10.0 to 15.0. The Philly FED reported its index at 9.2.

The combination of those two items brought the rate on the 10-year Treasury a bit lower. The 10-year Treasury is +.027% with the yield at 5.037%.

There has been little action in the bond market in late morning and early afternoon trading. But, bare in mind, FED Chair Bernanke is in front of the Senate today. A sneeze may impact rates.

SHORT-TERM OUTLOOK [19 July 2007]

A trading range has emerged 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 5.040% has been tested on a few occasions, most recently today.

That trading range was tested yesterday on 18 July 2007. At one point the 10-year Treasury was at a low of 4.991%. Treasuries gained yesterday after Federal Reserve Chairman Ben S. Bernanke predicted in congressional testimony that inflation will recede and said housing market weakness may slow the world's largest economy

There is no significant data on Friday.

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