The bond market rose today, in parallel with a solid rally in equity markets. While an up day for the stock market might have been expected to be a down day for bonds, both markets have gained on signs the economy is on track for a soft landing. "It's been a little surprising given the rebound in the equity market," said Bill Kirby at Prudential Securities.
The market took comfort from generally positive comments made this morning by
Alan Greenspan. "There were sighs of relief that Greenspan is not focusing on inflation," said Kevin Flanagan of
Morgan Stanley Dean Witter
After a weak opening, bonds changed course in early trading, aided by the publication of the
Philadelphia Fed Index
) which fell to -3.8 in October from 8.2 in September. The index was much weaker than average forecast of 6.1 and suggested slowing economic performance in the mid-Atlantic region.
Kirby sees the weak economic data and ongoing violence in the Mideast as giving a boost to the bond market. "Liquidity is a little bit better than its been in the past few days and we've seen money come off the sidelines," he commented.
Further good news for the market came in the unexpected shape of the latest
) data. The trade deficit for August fell to $29.44 billion from a revised $31.69 billion in July, significantly better than the $31.76 billion analysts had expected. A reduction in the U.S. trade deficit is seen as a further enhancement of a solid overall economic performance.
While the comments from Chairman Greenspan, in a speech at the
, had no clear implications for near-term monetary policy, they were seen as positive in tone. Greenspan supported the view that the economy is experiencing a "sustained pickup in productivity growth" that should enable it to grow at a faster rate without generating inflation.
, speaking at
in St. Louis, also gave a cautious but constructive outlook. After noting risks from higher oil prices and slower productivity growth, Meyer indicated that "we might be approaching a type of soft landing." This view is clearly helpful to the bond markets and could keep prices on an upward path.
The bond market has interpreted these comments as suggesting that interest rates will probably remain flat in the near term.
Finally, the Treasury bought $1.5 billion of old bonds and completed its 15th round of bond buybacks. So far bonds totaling $23.75 billion have been repurchased, out of a target for the year of $30 billion. Such buybacks reduce available supply and are seen as bullish for the market.
The benchmark 10-year
Treasury note rose 9/32 to 100 22/32, yielding 5.66%.
Treasury bond ended up 2/32 at 106 30/32, with a yield of 5.76%.
Chicago Board of Trade
, the December
Treasury futures contract closed up 7/32 at 100 8/32.
initial jobless claims
) for the latest week declined to 307,000 from 314,000, in line with expectations.
Currency and Commodities
The dollar rose against the yen and fell against the euro. It lately was worth 108.20 yen, up from 108.02. The euro was worth $0.8430, up from $0.8390.
Crude oil for November delivery at the
New York Mercantile Exchange
was unchanged at $32.90 a barrel.
Bridge Commodity Research Bureau Index
slipped to 227.18 from 228.88
Gold for December delivery at the
was lower at $272.10 from $272.60