The bond market continued its slide as prices and yields adjusted to the realization that hawkish sentiments inside the Federal Reserve Board will almost certainly delay a continuation of easing interest rates until 2007.
Even with company earnings being reported as softer than expected, signs of a slowing economy are insufficient in buttressing recent gains in bond prices. Also, tomorrow begins the first of four US Treasury note auctions for October adding inventory to an already queasy marketplace.
This reversal in rates, however, is being conducted below 5% on the US Treasury yield curve, save the 3-month and 6-month t-bill. In November, the bond market rally may resume if profit taking in the stock market occurs from current levels and the upcoming elections results in a change in control of the House of Representatives and/or the Senate by the Democrats.
Trading over the next two weeks in the bond market will be sloppy and will be based on political uncertainty and economic anxiety.