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By Rom Badilla, CFA & Maulik Mody – Bondsquawk.com

Treasuries gained and stocks slumped early in the day on weak new home sales and durable goods data. Treasuries lost with yields ending higher after the government auctioned 5-Yr Treasury notes at a record low yield. Stocks overlooked today’s economic data and gained after early losses in the day, ending its 4-day slide. The gain in stocks comes as a surprise, given two straight days of disappointing data from the housing sector.

Economic Data

Today, the U.S. Commerce Department released a report that new orders for manufacturing durable goods improved but well short of market expectations, which provides further evidence that the economy is slowing.  The Durable Good Orders reversed course and improved in July as the Index increased 0.3 percent in July after a revised 0.1 percent fall in the previous month.   The slight increase disappointed market forecasts as economists were expecting a 3.0 percent increase.

Durable Goods ex Transportations declined a massive 3.8 percent in July versus surveys of a monthly increase of 0.5 percent.  The index was revised upward in June from an initial decrease of 0.6 percent to a final increase of 0.2 percent.

New Home Sales for July falls deeper into the abyss by plunging 12.4 percent from the prior month to an annualized figure of 276,000. Today’s release which is the lowest figure recorded in its 47 year history, disappointed surveys as economists expected sales to reach 333,000. The prior month’s figures were revised downward by 15,000 to a final annualized rate of 315,000.

Click here to find out what Lawrence Yun, economist at NAR, has to say about the existing home sales numbers.

Interest Rates

Treasuries ended lower after today’s auction of 5-Yr notes, which sold at a record low yield of 1.374%, smashing the previous low of 1.54% for the December 2008 auctions. Yields ended higher in the front end of the curve, as the Long Bond slipped slightly. The yield on the 30-Yr inched up by a basis point to 3.57%. The 10-Yr fell more as yields pushed up 4 bp to 2.53%. Yields on the 2-Yr ended 3 bp higher at .51%, while the 5-Yr closed at 1.37%, 5 bp above yesterday’s close.

Inflation expectations, as indicated by the yield differential between 10-Yr Treasury and TIPS, widened 3 bp and now stands at 1.55%. The breakeven rate touched its lowest level f the year yesterday at 1.51%.

Across the Atlantic, government bond performance was mixed. Germany’s 5-Yr Bunds were flat at 1.22%, while the 5-Yr French bonds posted slight gains. Its yield slipped by a basis point to 1.55%. 5-Yr U.K. Gilts gained, pushing yields 2 bp lower to 1.58%.

Among the PIIGS nations, yields ended higher as bonds fell. Portugal’s 5-Yr bonds slumped as its yield pushed 14 bp higher to 4.02%. Ireland’s 5-Yr bond yields rallied 26 bp to 4.55%. Italy’s 5-Yr bonds fell slightly in comparison as yields ended 3 bp higher at 2.62%. The yield on 5-Yr Greece bonds gained 39 bp to cross the 12.% mark, now standing at 12.11. Spain’s 5-yr bonds fell as yields climbed 4 bp to 2.91%.

Credit Markets

For performance of investment grade corporate bonds, check today’s ITB Corporate Bond Indices.

The spread of the BofA Merrill Lynch U.S. High Yield Mater Index, which tracks high yield corporate bonds, narrowed by a basis point to end at 6.92% over Treasuries with comparable maturities.

The difference in yield between 30-Year Conventional Mortgage Backed Securities and the 10-Year Treasury narrowed 3 bp to 0.88%.

Across the Capital Markets

Stocks ended higher today as investors gained some appetite for equities. The S&P improved 0.33% from yesterday to end at 1055.33. NASDAQ closed at 2141.54, up 0.84% since yesterday. The CBOE VIX slipped 2.8% to 26.70.

The dollar index, which measures the performance of the greenback against six major currencies of the world, gained 0.1% to 83.226. The Euro gained 0.2% against the dollar, to 1.2659. The British Pound appreciated 0.4% to 1.5458.

Gold spot price increased 0.8% to $1240.05. Crude oil spot price appreciated 1.7% to 72.90.

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