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US Treasuries on defensive as rate concerns mount
Wed Sep 6, 2006 1
By Lucia Mutikani
NEW YORK, Sept 6 (Reuters) - U.S. Treasury debt prices hovered at lower levels on Wednesday as investors fretted that the Federal Reserve may resume its interest rate-raising campaign after robust data on labor costs and services sector growth.
The surprise surge in unit labor costs, a gauge of inflation and profit pressures, and strong growth in the service sector brought Fed's battle with inflation back into focus. Inflation erodes the value of bonds over time.
The Fed paused in its two-year-long interest rate-raising cycle last month.
Second-quarter unit labor costs were revised to a 4.9 percent rise, well above economists' median forecast for a rise of 3.8 percent. The Institute of Supply Management's services sector index rose to 57 in August, above economists' median forecast for an increase to 55. The index rose 54.8 in July.
"I think this is a report that improves near-term economic prospects while suggesting that the Fed may not be finished at reining in inflation risks. ... It warns us that more Fed rate hikes can't be dismissed," said John Lonski, chief economist at Moody's Investors Service in New York.
US Treasuries on defensive as rate concerns mount
Wed Sep 6, 2006 1
By Lucia Mutikani
NEW YORK, Sept 6 (Reuters) - U.S. Treasury debt prices hovered at lower levels on Wednesday as investors fretted that the Federal Reserve may resume its interest rate-raising campaign after robust data on labor costs and services sector growth.
The surprise surge in unit labor costs, a gauge of inflation and profit pressures, and strong growth in the service sector brought Fed's battle with inflation back into focus. Inflation erodes the value of bonds over time.
The Fed paused in its two-year-long interest rate-raising cycle last month.
Second-quarter unit labor costs were revised to a 4.9 percent rise, well above economists' median forecast for a rise of 3.8 percent. The Institute of Supply Management's services sector index rose to 57 in August, above economists' median forecast for an increase to 55. The index rose 54.8 in July.
"I think this is a report that improves near-term economic prospects while suggesting that the Fed may not be finished at reining in inflation risks. ... It warns us that more Fed rate hikes can't be dismissed," said John Lonski, chief economist at Moody's Investors Service in New York.
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