Wednesday, June 17, 2009

Praise Jesus! Rates falling!

Inflation numbers came out today which calmed inflation fears. They're calling it the "Goldilocks Scenario":
Large debt sales have raised concerns about inflation. But a government report on consumer prices released Wednesday indicated inflation is not a near-term threat, echoing the government's report released Tuesday on wholesale prices.

The Consumer Price Index, the Labor Department's key measure of inflation, has fallen 1.3% over the past year, marking the largest year-over-year decline since April 1950. On a monthly basis, CPI rose 0.1% in May, shy of the 0.3% rise that was expected.

With inflation in check, the Federal Reserve can feel more confident leaving its key lending rate at a target range of zero to 0.25%. One analyst said the Fed's hands are tied for now.

Also, the debt buyback program from Treasury is kicking in:
On Tuesday, debt prices rallied after the first scheduled debt buyback for the week where the government bought $6.5 billion of debt that matures between May 2012 and November 2013.

The government embarked on its $300 billion quantitative easing program in March. The goal was to create demand in the marketplace, keeping a lid on rising yields.

However, creating demand in a marketplace overwhelmed with supply has proven a challenge. Yields have dipped in the last few sessions, but are still higher than they were in March. Higher yields mean higher lending rates, particularly for home mortgages.

The government continues to sell debt to fund its rescue for the economy. On Thursday, the Treasury will announce the size of the 2-year, 5-year and 7-year auctions scheduled for next week. Last week, the market absorbed $65 billion in debt.

Subsequently, rates dropped 3/8th of a point over night.

SOURCE: CNN MONEY

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