U.S. 10-Year Treasury Passes 5%, Futures Dip

by: Steven Towns

Both the European Central Bank and New Zealand hiked their benchmark interest rates a quarter-point, to 4.0% and 8.0%, respectively. The Bank of England paused at 5.5%. Fed fund futures now show traders only expect an 18% chance of an FOMC rate cut to 5.0% in '07, compared to 40% last week and 98% a month ago. Global-Central-Bank-Rates-chart-06-07-07 Benchmark rates are at multi-year highs across the globe. A Glasgow-based bond fund manager said the hike by New Zealand "frightened" investors, adding that "Global growth is too strong, yields have to rise. The trend is bearish." Yields on U.S. 10-year Treasury bonds are currently above 5%, their highest level in 10 months, pushing futures lower: Dow -21, S&P -3.5 and Nasdaq -5.75. Yields for both the 2-year and 5-year are currently at 4.99%. The Dow Jones Industrial Average has fallen 210 points (-1.5%) in the past two days, while the S&P is down 1.4% and the Nasdaq is off 1.2%. Meanwhile, the VIX has increased 16% to 14.87, since the start of June. The Fed next meets June 28; it has kept its overnight lending rate at 5.25% for the past seven meetings.

Sources: Bloomberg, MarketWatch
Commentary: White House Lowers 2007 Growth Forecast, Raises Inflation OutlookThe Fed Won't CutBond Yields Are Rising - Trouble For Equities?ECB Hikes to 4% as ExpectedThe Fed's Not Alone: Global Tightening Cycle Going On
Stocks/ETFs to watch: iShares Lehman TIPS Bond (NYSEARCA:TIP), iShares Lehman 1-3 Year Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 Yr Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ Year Treas Bond (NYSEARCA:TLT), S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)

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