Treasuries Climb as the Fed Leaves Rates Unchanged

Once again the bond market has performed well, both before and after theFed's decision to leave interest rates unchanged and to leave its policy biased toward higher rates. The fixed-income market was also encouraged by today's economic data.

The equities markets were not so heartened by the decision. The major indices dropped sharply in late-afternoon trading before recovering to close with modest gains. The Dow Jones Industrial Average closed with a 26-point gain, while the Nasdaq Composite Index ended 27 points higher. Both indexes had been in solidly positive territory just before the interest rate announcement.

The political confusion in Florida has probably helped the bond market by restoring its safe-haven appeal. "It's helped the bond market because of risk aversion -- this election is hanging over the markets," said Rob Podorefsky of Fleet Capital Markets.

The benchmark 10-year Treasury note rose 13/32 to 100 9/32, dropping its yield 4.6 basis points , to 5.711%.

The 30-year Treasury bond rose 23/32 to 106 25/32, dropping its yield 4.6 basis points, to 5.767%.

At the Chicago Board of Trade, the December Treasury futures contract was 16/32 higher at 100 15/32.

The longer end of the yield curve did particularly well. "Surprisingly, some pretty decent curve flattening has occurred in the past hour," said Podorefsky. "The market is pleased," he added. This pattern suggests that traders are satisfied that inflationary pressures will remain muted. The announcement that the Treasury would buy back a further $1 billion of bonds this week also helped the market.

Economic Indicators

The Mortgage Applications Survey (definition | chart | source) for the week ended November 10 rose 6% to 690.4 from 651.2 in the previous week. Refinancings made up 28.5% of total activity.

Business inventories (definition | chart | source) for September edged up 0.1% after a rise of 0.7% in August. A rise of 0.3% had been expected. This was the slowest pace in nearly two years.

October's industrial production (definition | chart | source) index fell 0.1%, below expectations of a rise of 0.2%, after a 0.4% increase in September. A decline in auto production was the major cause of the falloff. Capacity utilization was in line with forecasts at 82.1%.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 108.84 yen, up from 108.16. The euro was worth $0.8570, down from $0.8576. For more on currencies, see TSC's Currencies column.

Crude oil for December delivery at the New York Mercantile Exchange rose to $35.55 per barrel from $34.83.

The Bridge Commodity Research Bureau Index rose to 226.80 from 225.16.

Gold for December delivery at the Comex rose to $265.9 per ounce from $265.5.