The bond rally on Wall Street raced ahead yesterday as market sceptics accepted that slowing economic growth is diminishing the risk of monetary tightening by the Fed.
US Treasuries extended their gains, with the long bond up 1-9/32 to yield 6.93 per cent.
"The bond market is really on fire," said Guy Truicko, portfolio manager at Unity Management. "It's behaving like the economy is really slowing and heading for recession."
With US inflation figures due later this week, some analysts were saying it was "party time" for the bond markets.
The American equity markets also shot ahead in morning trading, spurred by the positive sentiment on inflation.
Wall Street stocks took their lead from the rally in the bond market and surged ahead in late morning, putting concerns about the economy slowing too much on the back burner.
The Dow was up eight at 4391 while advances led declining issues by about 12 to seven. The markets then paused, with some analysts worried that falling retail sales and growing inventories may soon start dampening the stock markets.
"It should worry equity investors," Mr Truicko said, "but the focus of the stock market is interest rates. Current earnings growth is good. Nobody is looking to the future."
He said it would take fundamental shock, such as a negative earnings surprise from a major cyclical, to wake people up toslowing earnings growth.
The bond rally was apparently touched off early when the market heard talk that US chain store sales fell 0.4 per cent in the week ended 6 May compared to the prior week, according to the Mitsubishi Bank-Wertheim Schroder Index.
The benchmark 7-5/8 per cent 30-year T-bond was up 1-3/32 to 108-17/32, yielding 6.94 per cent.
Astrid Adolfson, economist at MCM MoneyWatch said: "Everybody's buying everything. You can make money even in commodities today. This is real buying by retail (brokers)."
One dealer of government securities said the unexpected shortage of bonds was over-riding more technical considerations in the market. "Its supply and demand. People need paper and there is not enough."Reuse content