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April 14, 2011

Rate warning: bonds can’t continue rally despite supporting data

April 14, 2011

Rate warning: bonds can’t continue rally despite supporting data

The S&P 500 is down slightly, hovering around 1312, and bonds are also down slightly today after higher jobless claims, less-than-expected business inflation, and a favorable Treasury bond auction.

All three factors would normally suggest a bond rally that would drive rates down, but after a strong two-day rally Tuesday and Wednesday, today’s jittery downside bond trend means consumers who are ready should consider locking rates—unless you’ve got the stomach to wait for tomorrow’s consumer inflation data. Below are more details on today’s data.

The Producer Price Index (PPI), which measures manufacturing inflation, showed that prices increased 0.7% in March and 5.8% since March 2010. The monthly figure was less than the 1% expected, but the annual figure is still high. Also, excluding more volatile food and energy from the readings, ‘Core’ PPI for March was 0.3%, hotter than expected. Core was 1.9% since March 2010, and this is at the top end of the Fed’s 1-2% comfort zone.

Today’s weekly reading of workers seeking unemployment benefits increased for the first time in the past month. Claims jumped 27,000 (from 385,000 to 412,000) and continuing claims as well as the 4-week moving average also rose.

And today’s $13b 30yr Treasury bond auction results were favorable.