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Treasury yields slip from highs

January 31, 2007 | Financial Times

US Treasuries were firmer on Tuesday, bringing yields off recent highs as traders prepared for this afternoon’s Federal Open Market Committee statement and other key data.

Investors shrugged off the highest reading for consumer confidence since May 2002. The index edged up to 110.3 in January from 110 a month earlier on the back of a robust jobs market and lower energy costs.

“This report points to a further tightening of the labour market in January,” said economists at Bear Stearns. The monthly jobs report is due on Friday.

Tuesday’s higher prices followed a steady sell-off in previous weeks. “The market is just getting back some ground after a run of negative days, but ... recent data has been generally bond negative, supply is out there and ... inflation remains the watchword,” said analysts at Briefing.com.

The FOMC is expected to keep interest rates at 5.25 per cent this afternoon, and market reaction is likely to centre on the wording of the committee’s statement.

Other data include Wednesday’s estimate of fourth quarter economic growth and the December core PCE deflator, the Fed’s preferred inflation indicator, due on Thursday.

By late afternoon in New York, 10-year yields were 1.8 basis points lower at 4.875 per cent. Two-year paper was yielding 4.971 per cent, down 2.1bp.

In the eurozone, Bunds were slightly up on the day after German inflation for January came in lower than anticipated, although traders there were also cautious ahead of the FOMC meeting.

In late trading, the 10-year Bund was yielding 4.107 per cent, 0.5bp lower on the day.

UK gilts were also stronger following data from Nationwide and the Bank of England that suggested the housing market could be cooling.

The 10-year gilt was yielding 4.988 per cent, 2.8bp lower. Two-year yields were at 5.47 per cent, down 3.5bp.

News of a fall in Japanese household spending pushed prices up and yields down on short-dated Japanese government bonds amid fresh doubts about the Bank of Japan’s ability to raise rates in February.

The yield on the two-year JGB slipped 1.5bp to 0.740 per cent. The 10-year yield edged down to 1.715 per cent.


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