US Treasury prices climb

05 Aug, 2004

US Treasury debt prices rose on Tuesday but gains were curtailed by soaring car sales for July, which hinted economic growth could be rebounding from last quarter's slowdown.
Annualised sales of vehicles made in North America reached a solid 13.9 million in July, well above expectations closer to 13 million and a considerable improvement over June results.
The auto industry rebound offered some support to the theory of Federal Reserve officials that a slowdown in consumption during June was only temporary.
That would mean the Fed can keep raising interest rates steadily for the remainder of the year, to the dismay of bond bulls still hoping the central bank might slow the pace of monetary tightening.
But analysts said it would take other data such as jobs before economists could surmise whether growth would indeed make a serious comeback during the third quarter.
"There's still a great deal of uncertainty about whether the weakness we saw in June was an aberration," said Christopher Low, chief economist at FTN Financial.
For now, bonds were hanging on to the possibility that the Fed's assessment has been overly optimistic, with the benchmark 10-year note firming 6/32 in price, taking yields to 4.43 percent from 4.45 percent.
Treasuries had started the session lower after reports that the latest terror alerts had been largely based on old information triggered an unwinding of Monday's modest safe-haven bid.
Prices first turned positive after a report showing annual growth in the core personal consumption expenditures price index, the Fed's favoured measure of inflation, held at 1.5 percent after May's result was revised down to 1.5 percent.
The data also confirmed a slowdown in spending for June, with consumption diving 0.9 percent in real terms - the biggest drop since September 2001.
Consumer spending drives about two-thirds of US economic growth and a spending slowdown, if sustained, might tend to curb the Federal Reserve's campaign to raise official rates.
Two-year notes were unchanged, their yield at 2.65 percent, thus flattening the yield curve. Five-year notes were up 2/32, their yields easing to 3.65 percent from 3.67 percent on Monday.

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