Bonds See Buying On Economic News, Fed Announcement

Bonds See Buying On Economic News, Fed Announcement

Wednesday, January 31, 2007 4:00:51 PM - Bonds saw buying on Wednesday, amid the release of disappointing results from a closely-watched regional manufacturing survey and a somewhat dovish Fed Announcement. This took the ten-year yield further off a recent multi-month high.

After a brief bout of selling at the outset of trading, bonds began a buying-spree in the mid-morning. The release of the Chicago PMI report helped spur the momentum. Trading then moved sideways until the Fed announcement, which caused another round of buying. The 10-year yield eventually lost 4.9 basis points on the day, finishing at 4.826%.

Selling has marked most of the past 2 months of bond trading, sending the 10-year yield to its highest level since mid-August. Before some mild position squaring on Tuesday, the 10-year yield had challenged the 4.9% a couple times over the past few days.

The Chicago PMI, a key regional manufacturing index, came in at 48.8 for January, down from December’s reading of 51.6. Any reading below 50 represents contraction in the sector, while a reading above 50 points to expansion. In the afternoon, the Fed left its benchmark interest rate at 5.25%, and stated that readings on core inflation rates have improved. Meanwhile, the announcement of GDP data near the start of Wednesday’s session seemed to have little impact. The government reported that GDP grew at a rate of 3.5% in the last 3 months of 2006, an acceleration compared to the 2% growth shown for the third quarter.
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