Interest Rate Roundup

Friday, December 22, 2006

"Good" news, "Bad" reaction, take two

Several days ago, I mentioned that the Consumer Price Index came in tamer than expected. Bonds initially rallied on the news, but ultimately rolled over and finished the day down a bit in price, up in yield. We're getting another bout of that today. The economic data showed ...

* Durable goods orders, excluding transportation, dropped 1.1% in November vs. expectations for a gain of 1%.

* The gains in November personal income and spending were slightly below expectations, by 0.1% each, according to Bloomberg.

* The core personal consumption expenditures price index was flat on the month, vs. forecasts for a 0.1% gain. That brought the YOY PCE core inflation rate down to 2.2% from 2.3% in November.

You might expect bonds to rally on this news. But you'd be wrong. Long bond futures were recently down 22/32, in fact, a fairly large move. Ten-year note yields shot up more than 6 basis points.

I don't want to make too much of this given that the markets are thin as a reed this time of year. But it is worth noting the odd reaction to arguably bullish data.


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