Treasury Prices Sink As Investors Watch Rates, U.S. Economy

From Standard & Poor's Equity Research

Standard & Poor's Equity Research

MARKETSCOPE : Treasurys fell Wednesday as investors continued wondering what happens next to interest rates.

The benchmark 10-year notes were lower at 100-23/32 for yield of 5.038%, from 100-29/32 for yield of 5.008% hours earlier. The 30-year bonds sank to 90-25/32 for yield of 5.109%, from 91-02/32 for yield of 5.086%.

Former Fed Chairman Greenspan told the Senate Foreign Relations Committee sharply higher oil prices have yet to seriously erode global economic activity, but recent data indicates the United States "may finally be experiencing some impact

The ratings agency Standard & Poor's forecasts U.S. Real Gross Domestic Product to slow from the 5.3% pace seen in the first quarter 2006 to 2.3% by the fourth quarter of 2006. They think it will then average 2.4% in 2007, down from the 3.4% forecast for all of 2006.

"We now believe the bond market is more likely indicating it has faith the Fed will go far enough -- or possibly too far -- in its effort to rein in inflation," says Sam Stovall, an analyst at Standard & Poor's. "As a result, the real worry is not about inflation, but rather the possibility that the U.S. economy will slow more rapidly than currently estimated."

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