U.S. Treasury Bonds Stumble On Signs of Economic Strength
May 12, 2011
U.S. Treasurys tumbled Friday after a string of stronger-than-expected economic indicators confirmed the U.S. economy's robust growth and heightened fears that the Federal Reserve soon will move to raise interest rates. The price of the benchmark 30-year bond fell 28/32, or $8.75 for a bond with a face value of $1,000, to 95 13/32 at Friday's close. The yield, which moves in the opposite direction from the price, rose to 7.11% from 7.03% late Thursday. Ever since Orange County wiggled out of its general obligation pledge, the safest play in the municipal bond market generally has been assumed to be water bonds. But not all water munis are equally safe, Branch Salvador explains in this week's Muni Telescope. Early Friday, the Chicago Purchasing Management Association reported its key index of manufacturing activity jumped to 60.0% from 51.2% in July. The reading was the highest for the index since last October. At the same time, the Commerce Department said July factory orders jumped 1.8% to a record $317.63 billion. Durable goods were revised as rising 1.7% from a previously reported 1.6%. In addition, the University of Michigan consumer-sentiment index showed an increase to 95.3 from the 94.5 reading in its preliminary midmonth report. All three reports exceeded economists' expectations and provided further evidence that the U.S. economy is growing at a healthier pace than had been expected. The strong growth prompted many analysts to speculate that the Federal Reserve soon may move to raise rates to stem rising inflation. In other credit markets, Corporate traders saw Stratosphere's debt price drop in a thin pre-holiday market. Municipal bonds declined on falling U.S. treasury yields.
