Bonds rally on weak US durable figures

US Treasury bonds rallied after a weaker-than-expected result for durable goods orders, but global equity markets were relatively calm in an otherwise slow Monday trading session. One exception was in Italy, where the risk of a new government crisis sent shares and bonds tumbling.

Orders for long-lasting US manufactured goods fell the most in nearly a year in July and a gauge of planned business spending on capital goods tumbled.

The weak data boosted prices in the US bond market, where the benchmark 10-year US Treasury note was up 3/32, the yield at 2.80 per cent.

The durable goods report was the latest in a series of data points that have kept expectations for the Federal Reserve’s next step muddled. Economists largely expect the Fed will start to reduce its $85 billion in monthly purchases of debt, but some uncertainty over this remains.

Craig Dismuke, chief economic strategist with Vining Sparks in Memphis, Tennessee, said the news would not stop the Fed from "tapering", but that the Fed "might taper less than expected". The debate over the Fed's plans and its impact on emerging economies has dominated markets in recent weeks.

Indexes
The Dow Jones industrial average was up 13.42 points, or 0.09 per cent, at 15,023.93. The Standard & Poor's 500 Index was up 2.04 points, or 0.12 percent, at 1,665.54. The Nasdaq Composite Index was up 18.76 points, or 0.51 per cent, at 3,676.55.

"The numbers were disappointing this morning, but maybe we've returned to one of those odd situations where bad news is good for the market in terms of the Fed tapering," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

In Italy, members of Silvio Berlusconi’s centre-right People of Freedom party said on Sunday they would force early elections if their center- left coalition allies voted next month to expel the former Italian premier over a tax fraud conviction.

Italian shares ended down 2.1 per cent, but the broader euro zone stock market was down just 0.2 per cent. Italy’s bonds fell, taking Spanish and Portuguese bonds down too. Investors are worried Italy’s plans to mend its finances will fall apart if the coalition crumbles. – (Reuters)