Treasury Prices Fall

From Standard & Poor's Equity Research

MARKETSCOPE : Treasurys weakened in value on Wednesday, as investors watched news of Federal Open Market Committee minutes and a stronger than expected Chicago Purchasing Managers Index.

The 10-year Treasury notes were yielding 5.12% at noon Eastern Daylight Time, compared to 5.07% at Tuesday's close. The 30 year bonds were yielding 5.22%, unchanged from the previous close but higher than the 5.17% they yielded near opening time. Yields rise when prices fall.

May 10 FOMC minutes released on Wednesday said that given "the risks to growth and inflation, Committee members were uncertain about how much, if any, further tightening would be needed" after the 25 basis point hike on May 10.

"The minutes of the May 10 FOMC meeting indicated uncertainty over the future path of interest rates," says David Wyss, of Standard & Poor's, New York. "They are waiting to see how fast the economy cools and how fast inflation rises."

Among other news Wednesday, the Chicago PMI rebounded to a stronger than expected 61.5 level in May from 57.2 in April. The May rise put the index at the highest level since 61.9 in October.

The stronger than expected Chicago PMI "raises upside risks to tomorrow's national ISM reading on manufacturing activity," according to Bear Stearns' John Ryding. He adds that "strength in tomorrow's ISM report would further reduce the chances of a pause on June 29."

New York Fed's Geithner said the Fed is now emerging from a 2-year period of certainty about the course of interest rates and entering a phase of uncertainty. Chicago Fed's Moskow yesterday said the Fed must seek a middle ground for inflation. Those reports could trump the evidence of slower economic growth.

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