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The U.S. Treasury market is advancing on a number of factors, some of which would likely spur a significant advance if they developed further, although this is not yet in sight. The best bet is for stability in bonds -- no moon shot -- because many of the factors that recently drove yields higher are still in place. Here are seven factors boosting Treasuries:
Rally in European bonds
: Weaker-than-expected readings on investor sentiment over the economic outlook in Germany and for the European community helped spur gains in European bonds, where yields are down between 4-6 basis points. Both the German and European ZEW surveys were weaker than expected (the ZEW is a survey of several hundred institutional investors).
: Recent data on housing have been glum, particularly the monthly Housing Market Index released Monday from the National Association of Home Builders. Nothing gets the bond market going better than weak housing data.
Subprime anxieties have returned
: ABX indices have been weaker and many are talking about a new leg lower and increased fallout from the subprime market.
Credit spreads wider
: Corporate credit spreads are said wider in the investment-grade arena on the heels of weakness in Expedia's credit default swaps, where the cost of protecting $10 million of Expedia's debt increased to $189,000 from $70,000 yesterday, according to Bloomberg based on data from CMA Datavision.
Chain store sales
: Signs of strain are surfacing in the chain store figures, with the year-over-year comparisons holding near +2.0% recently, well below normal readings of 3.5% to 4.0%. The figures suggest strain from housing and from high energy costs. Should these signs of weakness continue, the nascent rebound in factory activity will end perceptions about the economy would change and tilt back toward the idea of an interest rate cut.
: There are always consulting reports floating around, and in today's edition of one widely followed report is the notion of no change in
policy and of a delay in the ECB's next rate hike to October instead of September.
: The bond market has obviously been technically oversold and is now consolidating recent losses.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic,
The Money Market
, first published in 1978 by Marcia Stigum, and
The Strategic Bond Investor
. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback;
to send him an email.
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