Bonds Gun It on ECI Data, Then Shift Into Cruise Control

Friday's GDP report isn't expected to create much buzz.
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Today's rally in the bond market proceeded in almost the exact fashion as

yesterday's selloff. Today, economic data triggered a furious rally that later tapered off as investors focused their attention on corporate supply.

Yesterday, the market sold after the release of March's durable goods figures. Today, record lows achieved in the

Employment Cost Index

report got the market rallying early. All of the day's gains were achieved by 9 a.m. EDT; since then, the activity's been mild.

Lately the 30-year Treasury bond was up 29/32 to trade at 96 1/32. The yield fell 7 basis points to 5.52.

The ECI rose 0.4%, the smallest percentage gain in this report since the index's inception in March 1982, the

Labor Department

said. Wages and salaries in the finance, industry and real estate sectors fell 1.9%, holding back the gains in this report.

"That allowed the bond market to rally," said Charles Reinhard, market strategist at

ABN Amro

. "It came at a good time because we've had higher energy prices which got people worried, so this is some positive news on the inflation front."

After 9 a.m. EDT, investors were hardly paying attention. The fixed-income eating machine gobbled up $3.5 billion in securities from

Sprint Capital

, a unit of

Sprint

(FON)

, and another $750 million from

Sears

(S) - Get Report

.

Reinhard believes the ECI report will give pause to any member of the

Federal Reserve

entertaining thoughts of raising interest rates. The Fed is most concerned with wage pressures and a rise in the core rate of inflation, but to date the most visible rise in prices has been in the energy sector, which is beyond the central bank's control. The price of crude oil futures rose 8 cents today on the

New York Mercantile Exchange to close at $18.53.

Economists are forecasting a 3.3% rise in first-quarter

gross domestic product

. However, since the consumer spending and trade figures that comprise two components of GDP (there are four components) are already known by the market, this release carries less dread with it than other economic reports.

"I'm not sure the market is going to be terribly interested in GDP," said Carol Stone, deputy chief economist at

Nomura Securities

. "We already know consumer spending will be strong, and we already know trade will be a huge drag."

Most important for the bond market is the

implicit price deflator

, the inflationary component of the

GDP

report, which has remained low as well. During the fourth quarter the deflator rose only 0.8%.

The

Chicago Purchasing Managers Index

, a survey of sentiment among Midwest manufacturers, is also released tomorrow. The forecast is for a 56.7 reading in April, compared to 57 in March. Any reading above 50 indicates expansion in the manufacturing sector; below 50 contraction. The report is considered a good precursor to the

National Association of Purchasing Managers'

survey, released next Monday. NAPM reports are "more immediate reads, even though they're only giving us one piece of the economy," Stone said.

Were both indices to rise, it would indicate strong underpinnings in the manufacturing sector, which until the last couple of months was in a recession.