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COPYRIGHT 2005 Voxant Inc.
Original Source: NIGHTLY BUSINESS REPORT
PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: Bond traders climb a wall of worry, pushing the 10-year Treasury note to its highest yield since March. The sell-off is spurred by concerns about inflation and a growing certainty that the Federal Reserve will keep raising interest rates through the beginning of next year.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: President Bush says it`s time to tighten the budget belt, finding new ways to slash spending. But getting Congress to agree on those ways may be easier said than done.
KANGAS: Shares of aircraft maker Boeing hit trading turbulence today on its third quarter earnings report. We talk with the company`s new CE0, who`s been on the job now for just months and has already dealt with a machinists strike.
GHARIB: And you might want to think twice before you pull out that plastic. Paying your credit card bill is about to get more expensive, maybe a lot more expensive.
KANGAS: I`m Paul Kangas.
GHARIB: And I`m Susie Gharib. This is NIGHTLY BUSINESS REPORT for Wednesday, October 26.
Good evening, everyone. Declines in the bond market pulled down stocks on Wall Street today. The Dow lost 32 points and the NASDAQ fell nine as investors focused on rising interest rates in the Treasury market. The yield on the benchmark 10-year note approached 4.6 percent, its highest level in seven months. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The bond market fell again today, continuing a trend that started two months ago. The yield on the 10-year note, which moves in the opposite direction to price, is now at the highest level since March. Strategists say the root cause of the rally in yields is the expectation that the Federal Reserve will keep raising interest rates into next year. With virtual certainty of the Fed raising interest rates in November and December, the bond market is already looking ahead to January. It is now pricing in almost 80 percent odds that the Fed funds rate will be raised to 4.5 percent at that January 31 policy meeting. Those odds were closer to 50-50 a week ago.
JACK MALVEY, CHIEF FIXED INCOME STRATEGIST, LEHMAN BROS.: There seems to be capitulation across the bond market in acknowledgement that the final resting place for the Federal Reserve Federal funds rate is probably somewhere around 4.75, plus or minus 25 basis points. And that is higher than what the market had envisioned going back a month ago.
MILLER: Yields have also been rising since Monday, when Ben Bernanke was named to replace Alan Greenspan as Fed chairman. Experts say investors are concerned Bernanke may want to establish his inflation-fighting credentials early on.
MALVEY: The expectation is this new chief central banker will be expected to demonstrate his inflation-fighting bona fides by being aggressive in 2006 and keeping the tightening continuing.
MILLER: Also helping to put pressure on U.S. bond prices is a decline in European bonds. The region`s economy has been improving and that has many investors betting the European central bank will soon boost interest rates, the first rate hike since 2000.
ANTHONY CRESCENZI, CHIEF BOND MARKET STRATEGIST, MILLER TABAK: Foreign bond markets right now are performing very poorly and that performance is affecting treasuries, too. Historically, there`s very strong correlation between U.S. Treasures and foreign bonds.
MILLER: Experts say another reason for the sell-off in Treasuries is growing concern about criminal indictments in the Bush administration for leaking the identity of a CIA agent.
CRESCENZI: Foreign investors own about half of the U.S. Treasury market. If they are fearing possible problems within the White House -- let`s say because of possible indictments of key people within the administration --...
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