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		Home Page Mortgage News You Can Use Treasuries Fall on Fed Gov's Optimism By Pedro Nicolaci da Costa, 2/5/2004 NEW YORK (Reuters) - U.S. Treasury prices slid on Thursday after a key Federal Reserve official jolted the market with an upbeat jobs and growth forecast. After trading flat for much of the session, bonds flinched when Fed Board Governor Ben Bernanke said the U.S. economy should expand by 4 percent or more in 2004. Even more worrying for bond bulls obsessing over Friday's January payrolls report, Bernanke said he was "pretty confident" the nation would soon see big numbers on employment. Bernanke's optimism left the market wondering whether the central bank might be tempted to begin hiking interest rates sooner than is generally expected. "You're seeing some good selling here and it's all based on Bernanke's comments," said Andrew Brenner, head of fixed income at Investec, Ernst & Co. A jump in first-time jobless claims reported earlier put a floor on prices, heartening those worried that January payrolls would finally bring the burst of job creation that has so far eluded this economic recovery. Jobless claims rose to 356,000 last week from a revised 339,000 the previous week, a surprise to analysts who had looked for a slight dip, offering some support to bonds. Still, economists were sticking to their forecasts of around 150,000 new jobs in January after December's meager 1,000 addition to payrolls. Any surprises in either direction might wreak havoc on the market. "People are nervous," Brenner said. "You could get some really violent moves tomorrow." Accustomed to surprises from the monthly employment figures, traders usually prefer not to make any drastic moves ahead of such data. But Bernanke's statements were tough to ignore, prompting a sell-off that left the benchmark 10-year note <US10YT=RR> 14/32 lower in price for a yield of 4.18 percent from 4.12 percent late on Wednesday. A Bloomberg story that was later retracted generated some confusion in the market when it suggested Bernanke had placed a specific time frame -- six months -- on the Fed's promise to be patient in removing policy accommodation. Thirty-year bonds <US30YT=RR> lost 16/32, taking their yield to 4.99 percent from 4.96 percent. Two-year notes <US2YT=RR> lost 5/32, leaving yields at 1.84 percent from 1.76 percent, while the five-year <US5YT=RR> lost 11/32 to yield 3.19 percent from 3.12 percent. Treasuries had suffered in sympathy with euro zone debt after the Bank of England hiked interest rates 25 basis points to 4.0 percent. Traders reported interest in a Wall Street Journal report that some Asian central banks were looking for ways to diversify their foreign exchange holdings away from U.S. Treasury debt. Central banks in Asia, and China and Japan in particular, have been massive buyers of Treasuries in the last couple of years and any hint, no matter how faint, of a change tends to make dealers nervous. Also released on Thursday were figures showing U.S. productivity growth slowed to 2.7 percent in the fourth quarter, having raced along at an unsustainable 9.5 percent the quarter before. Slower productivity could mean companies are closer to squeezing all they can out of their current work force and need to hire more. Anything that remotely supports the jobs outlook is seen bringing forward the day when the Fed might raise interest rates. On the other hand, labor costs fell a surprisingly steep 1.3 percent last quarter, pointing to still very subdued inflation pressures. Annual growth in the Fed's favored measure of inflation, the core personal consumption expenditures deflator, hit a four-decade low of 0.7 percent in January, leading many analysts to argue that the central bank need be in no rush to tighten.   Back to Original Article: Mortgage News You Can Use   Continue with: Rising rates not all bad for investors AP poll shows drop in consumer confidence Tokyo stocks end down; dollar up vs. yen Treasuries Up, Job Famine Keep Rates Lean France's Mer says G7 must alter message on currency US again outshines euro zone in key OECD indicator Fannie, Freddie to Lose Free Advances From Fed Unemployment Rate Falls to 5.6 Percent Much of World Skeptical of Bush's Budget U.S. Adds 112,000 Jobs, Less Than Expected; Unemployment Is 5.6 Percent Mortgage rates increase again Retailers report robust January sales Interest Rise Good News for Landlords? Staring down debt Bush budget an eternal mortgage How to deduct a boat loan during the tax season Home refinancings fall to 18-month low New Fed Policy To Change Housing GSEs' Cash Use
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