AP News, October 26th, 2007
Long-term Treasury prices rose Friday after investors moved into the government-backed securities when a poll's results showed weakening consumer sentiment.
Such a sign of future economic malaise could increase the odds that the Federal Reserve will cut rates again at its meeting next week.
Prices turned higher after the University of Michigan's consumer sentiment survey dropped to 80.9 in late October from 83.4 in September. The latest reading was below economists' forecasts and marked the weakest level since May 2006.
"The data imply that financial market turmoil and negative news headlines are continuing to weigh on sentiment," said Action Economics. Lower sentiment could lead to lower spending and dampen the overall economy.
The benchmark 10-year Treasury note rose 5/32 to 103 4/32 with a yield of 4.35 percent, down from 4.38 percent at Thursday's close. Prices and yields move in opposite directions.
The 30-year long bond gained 10/32 to 105 17/32 with a 4.65 percent yield, down from 4.69 percent at Thursday's close.
The 2-year note rose 6/32 to 99 26/32 with a 3.72 percent yield, down from 3.78 percent at its Thursday close.
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.
In early trading, prices fell 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.
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 a 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.
