Treasuries fall as data spurs talk of bolder Fed
Thu Jun 15, 2006
NEW YORK, June 15 (Reuters) - U.S. Treasury debt extended a sharp sell-off as a regional manufacturing report and a drop in jobless claims raised the possibility of an even more aggressive June interest rate hike from the Federal Reserve.
Frothy inflation data earlier this week had already cemented expectations for the central bank to raise the federal funds rate another quarter percentage point to 5.25 percent at its June 28-29 meeting.
But with New York Fed manufacturing activity posting a surprising jump in June and weekly jobless benefit applications dipping to their lowest in nearly four months, talk began to emerge of an even bigger move.
"The Fed is almost certainly going to raise rate on June 29, maybe by 50 basis points," said Kurt Karl, head of economic research at Swiss Re, adding that he now saw a 50/50 chance officials would opt for the half percentage point increase.
Of course, everything could change if industrial production and Philadelphia factory data later in the session contradict the New York Fed survey results.
For now, two-year notes <US2YT=RR> had slipped 2/32 for a yield of 5.15 percent, a new five-year high and and up 14 basis points in just two days.
Benchmark 10-year notes <US10YT=RR> fell 6/32 and were yielding 5.10 percent, up from 5.07 percent.
Of course, the question remained: would a 50 basis point move be a last hurrah for the Fed, a signal to antsy markets that the Fed was finally done tightening, or the start of a more aggressive anti-inflation stance?
The former seemed more likely, leaving five-year notes <US5YT=RR> off 4/32 for a yield of 5.08 percent, while the 30-year bond was down 9/32 and yielding 5.12 percent.