Reply #23: Specter of Inflation Spooks Treasuries [View All]

[54anickel]

http://biz.yahoo.com/rb/040414/markets_bonds_2.html

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"It goes a long way toward confirming expectations that inflation has indeed been rising for a while," said Jeoff Hall, chief North American economist at Thomson IFR.

"This is not an anomaly and the Fed should go with a rate increase earlier than the previous timetable had suggested. Now we're looking at perhaps a 1-3/4 percent funds rate by the end of this year," he added. The funds rate is currently sitting at a 46-year low of 1.00 percent.

Traders reported that buying from Asian central banks overnight helped support Treasury prices, though the latest rise in the dollar would seem to lessen the need for outright currency intervention.

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Still, figures from the Fed last week showed foreign central banks as a whole were still accumulating Treasuries at a brisk pace, perhaps because many of those countries continue to run large trade surpluses with the U.S. and have to put those excess dollars somewhere.

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The real deficit, adjusted for inflation, is running at about the same level as in the fourth quarter suggesting trade may not be as big a drag on economic growth last quarter as first thought.