AP News, October 26th, 2007
Long-term Treasury prices fell Friday as investors encouraged by corporate profit reports moved their funds to the stock market and out of bonds.
Treasury prices began falling overnight on strong performances in some Asian stock markets. The losses accelerated after troubled mortgage originator Countrywide Financial Corp. gave an upbeat outlook. That news suggested that a turning point might be near for the ailing mortgage industry, which would help stabilize the housing and consumer sectors.
The Treasury market usually is indifferent to corporate profits news, but this week it has been scrutinizing reports for indications of the impact that the tight credit market of last summer had on banks and loan originators.
Countrywide said its results in the most recent quarter were impacted by "unprecedented disruptions in the U.S. mortgage market and the global capital markets" and took a quarterly loss of more than $1 billion.
However, the lender, which has been hard hit by defaults on below-prime loans, gave an optimistic outlook and announced $18 billion in a new liquidity line.
"A surge in Countrywide shares following the release of their earnings results has driven (Treasury) yields through overnight highs," said Action Economics.
The benchmark 10-year Treasury note fell 8/32 to 102 23/32 with a yield of 4.42 percent, up from 4.38 percent at Thursday's close. Prices and yields move in opposite directions.
The 30-year long bond dropped 13/32 to 104 26/32 with a 4.69 percent yield, matching its close on Thursday.
The 2-year note rose 1/32 to 99 22/32 with a 3.79 percent yield, near its Thursday close.
Pricing of Federal funds futures contracts indicate that the market still expects the Federal Reserve to drop the Fed funds rate by a quarter percentage point to 4.50 percent at its meeting next week.
The Fed last month put in place an unusual half percentage point decrease that was cheered by both the stock and bond markets.
Fed officials have said data reports will play an important role in monetary policy decisions. Despite Friday's good news from Countrywide, many recent economic and corporate earnings reports have emphasized the damage done to banks and homeowners by last summer's severe credit contraction.
