Bonds get spanked

10-Year US Treasury June 2007 futures price, week ending 18. May 2007 11:30 PDT

An unexpected boost in a gauge of consumer confidence at a time when U.S. stock benchmarks are at multiyear highs challenged the view that record gasoline prices and a housing slump will cause an economic slowdown. Surveys of bond investors showing they have added to their holdings in the past month may indicate they have little appetite to buy more, traders said.

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"The China news will take a little more time to reverberate," said Arthur Bass, a trading strategist and managing director of derivatives in New York at Fimat USA LLC. "The market is kind of subdued."

A stronger yuan may reduce the flow of U.S. dollars to China as Chinese exports become more expensive, slowing the accumulation of dollar reserves that can be invested in Treasuries. China is the second-largest foreign holder of U.S. government debt.

Stanton, E. and Pinkert, A.
Treasuries Drop on Rate Outlook, China's Decision on Currency
Bloomberg, 18. May 2007