NEW YORK (CNNfn) - Treasury bond prices fell for the fifth straight trading session Wednesday, pushing yields to their highest levels in two weeks, on fears that a strengthening economy will lead to another interest rate hike.
Just before 3:30 p.m. ET, the price of the benchmark 30-year bond fell 9/32 to 100-17/32. Its yield, which moves inversely to the price, rose to 6.08 percent from 6.06 percent Tuesday.
Traders linked the continued slide in bonds to a host of bearish factors, including the dollar's weakness against the major currencies.
The U.S. currency Wednesday fell below the key 109 yen level for the first time since January on hopes that Japan, the world's second-largest economy, is recovering from recession.
Bond investors, however, fear a weakening dollar because it drives up the cost of imports. Higher prices, in turn, could give the Federal Reserve reason to hike interest rates, a move that erodes the value of bond holder's fixed income payments.
"We don't see any indication that the Fed would have caused to start talking more tolerantly about monetary policy," said Christine Callies, strategist at Credit Suisse First Boston. "And we don't think the bond market has any particular reason to go down to lower yield levels."
Already, fears of rising inflation have led the Federal Open Market Committee to hike short-term interest rates by a quarter percentage point in both June and August.
A host of recently strong data including buoyancy in the nation's housing market and factories has buttressed the view that another rate hike could be ahead.
Further, traders cite a host of other reason why yields may stay high in the short-term, including fears over a large calendar of new corporate bond supply and Friday's looming employment report for August.
John Lonski, bond market strategist with Moody`s Investor Service, sees two threats to bond prices ahead. Both involve the recovery of overseas markets. First, he says, with overseas markets strengthening, global investors are less likely to buy Treasury securities as a safe place to park their money.
"We have hard evidence that there has been a pullback of foreign buying of U.S .Treasury securities," Lonski said. "But more importantly, faster economic growth abroad will be to the benefit of the U.S. economy, will provide a boost to corporate revenues, perhaps add to the demand for labor, which can only increase inflation risks and puts more pressure on the Fed to eventually hike interest rates again."
Data mixed
The day's economic indicators gave a balanced take on economic growth. Leading economic indicators, a key gauge of future economic patterns, rose an expected 0.3 percent in July, the Conference Board said. But construction spending fell 0.5 percent in July, well off the 0.3 percent gain economists expected.
But the report with the greatest market-moving potential comes Friday. That's when the Labor Department puts out August employment figures. Analysts expect the unemployment rate to remain unchanged at 4.3 percent, near a 30-year low, with employers adding 220,000 non-farm jobs during the month.
Dollar weakens
In the currency markets, just before 3:30 p.m. ET, the dollar slipped to 109.02 yen, from 109.76 Tuesday, a 0.67 percent drop in the dollar's value. Meanwhile, it cost $1.0591 to buy one euro compared with $1.0566 Tuesday, a 0.25 percent drop in the dollar's value. 
|
