Bond prices fell today, pushing rates higher. It was not economic data that pushed rates. There was not much of it.

The Wholesale Inventories Report was higher than expected. But, as an inverse indicator that should have driven rates lower. Wholesale Inventories were expected to be +0.4%, but were +0.5%.

The treasuries were driven mainly by the global stock markets-including US – that were fueled in part by the Federal Reserve's statement yesterday that the U.S. economy is likely to weather a housing slowdown

There was less demand for the safety of US government debt as stocks staged a recovery. The recovery in equities occurred after the Fed's rate-setting committee said in a statement that job growth and a ``robust global economy'' may help the U.S. withstand the rout in subprime mortgages.

The FOMC Policy Statement included a recognition that the outlook for economic growth is weaker. This was a modification of the central bank's recent solitary focus on inflation. But it was a disappointment to those in financial markets who hoped the Fed would more clearly hint at the possibility of a rate cut in the next few months that suggests a bias toward higher interest rates, which can keep inflation in check as they damp spending by making borrowing more expensive. But the Fed added that "the downside risks to growth have increased somewhat" -- meaning it sees a slightly higher probability of weaker economic growth.

Measures of inflation that exclude food and energy have edged down, the Fed said, but a "sustained moderation in inflation pressures has yet to be convincingly demonstrated," an identical description to its June statement.

That implies it would take one of two things for the Fed to move to a neutral statement -- where the risks to growth and inflation are nearly in balance -- and thus level the odds of a rate cut or increase: either evidence that the drop in inflation will be sustained, or that there is greater risk to economic growth.

There was also fear that there may be an upcoming trade war. Bloomberg’s Elizabeth Stanton and Agnes Lovasz quoted a report in the U.K.'s Daily Telegraph that China, the second-largest foreign holder of U.S. government debt, is prepared to sell its holdings in the event of U.S.-imposed trade sanctions

The two writers went on to say, “China suggested it will sell holdings of Treasuries should the U.S. impose trade sanctions to force a yuan revaluation, the Telegraph reported, citing two Chinese officials. Calls by Bloomberg News to a press official at China's State Administration of Foreign Exchange weren't answered.”

The bond market opened with rates higher. Shortly after it started the 10-year Treasury was +.064% to 4.807%. At 08:30cdt {13:30gmt} the bond market took its cue almost completely from the stock market. (In the first few hours it most closely resembled the NASDAQ. After then it followed the broadly based S&P500).

The 10-year Treasury closed +.117% with the rate at 4.860%.

Steve Boxmeyer [612] 799 – 6858

steve@LendWithIntegrity.com