Thursday: Strong U.S. Exports Send Bonds Plunging

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By John J. Edwards III
Staff Reporter

The bond market reacted with revulsion to the March

international trade

report released Wednesday morning, sending prices plunging and yields jumping on news of surprising strength in U.S. exports. The yield on the benchmark 30-year Treasury bond rose to 6.96%.

The trade deficit for March narrowed to $8.51 billion, down from an upwardly revised $10.54 billion in February. Economists had expected a March gap of about $10.5 billion. In light of the low deficit, "first-quarter GDP looks like it's going to be revised up closer to 6% from 5.6%," said Dan Seto, senior economist and vice president at

Nikko Securities

.

Seto said the economy remains full of good news on inflation, with import prices on the decline. But market players have moved past their brief burst of euphoria at Tuesday's interest-rate inaction by the

Federal Reserve

, realizing that the July 2 meeting holds a near-certainty of a tightening. The markets aren't yet reflecting that certainty in prices, Seto said, so yields may well head higher.

"The Fed didn't change policy

Tuesday, but I think there's a sense that they're still on a very high level of alert, because the labor markets remain very tight," Seto said. "The markets also will be on a high level of alert."

Ahead of the Memorial Day weekend, however, there will be few meaty data for Wall Streeters to chew for clues. Seto said the Thursday release of the March

Federal Open Market Committee minutes

won't be as exciting as some people think. "It's worth a read, but I think they've already put the message out by raising interest rates," he said. "It doesn't get much clearer than that."

Thursday's numbers

(all times EDT):

Mortgage Bankers Association application volume indices

(morning): The measure of purchase and refinance applications for the week ended Friday. The prior week's purchase index was 205.1. The 52-week high was 257.3, set the week of March 28. The 52-week low was 156.8, set the week of Dec. 27. The prior week's refinance index was 303.4. The 52-week high was 610.7, set the week of Dec. 6; the 52-week low was 186.1, set the week of July 12.

Initial jobless claims

(8:30 a.m.): For the week ended Saturday. The consensus median estimate is 323,000, compared with 319,000 in the prior week.

Geometric Consumer Price Index

(8:30 a.m.): The experimental CPI for April. The total figure was 2.5% in March; the core figure, excluding food and energy, was 2.2%.

CNW Auto Sales Track

(10 a.m.): For May 11 through Tuesday.

Fed testimony

(10 a.m.): Chairman

Alan Greenspan

testifies before the

House Banking Committee

on financial services.

Treasury auctions

(1 p.m.): $13.750 billion in 52-week bills; $13.487 billion maturing.

FOMC minutes

(2 p.m.): The inside story of the March 25 Federal Open Market Committee meeting, at which members raised the Fed funds interest rate to 5.50% from 5.25%.