Monday, March 19, 2012

"SURPRISE" JUMP IN YIELDS?  Credit where credit is due it must be from "signs of economic recovery"

"Investors will be closely watching for another rise in interest rates when trading resumes on Monday, after the bond market’s sharpest move in nearly six months caught some traders by surprise last week.

Despite the sudden swing higher, most Wall Street strategists are playing down the danger of a surge in interest rates, which have been historically low because of demand for bonds from both the Federal Reserve and private investors wary of all but the safest assets.

The sell-off last week was caused by increasing signs that the economy might finally be gaining steam, lifting the yield on 10-year Treasury bonds to 2.31 percent on Friday, from 2.04 percent a week earlier. That was the biggest move in bond yields, which move inversely to bond prices, since October, when rates briefly topped 2.4 percent.

“It clearly caught everyone’s attention,” said Jim McDonald, chief investment strategist for Northern Trust in Chicago. “When something moves like this, by definition it’s a surprise.”

More data confirming that the economy is gaining momentum could come later this week. In addition to data expected on Tuesday and Wednesday on housing starts and existing home sales, the Commerce Department will disclose the latest figures for sales of new homes on Friday. And on Thursday, the Conference Board will announce its index of leading economic indicators for February. "

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