Treasuries advanced after government reports showed the economy grew at a slower pace in the second quarter than forecast, fueling speculation the Federal Reserve won't raise interest rates this year.
The gains pushed two-year notes to their biggest monthly rally since February after the growth report, which contained revisions that showed the economy may have slipped into recession during the last three months of 2007. Initial claims for unemployment benefits reached the highest level in more than five years. Initial jobless claims increased by 44,000 to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said. Economists had forecast a drop in claims. The total number of people on benefit rolls rose to the most since December 2003.
The bond market still isn't providing investors with enough income to cover the rate of inflation, which rose 5 percent in the year ended June 30, Labor Department data show. The Standard & Poor's 500 Index has dropped 13 percent this year and the dollar declined 4.7 percent against the currencies of six trading partners as U.S. financial institutions posted losses and writedowns totaling $250 billion in the deepest housing recession since the Great Depression.
According to the Kiplinger Letter released yesterday, "California will fare well in the increasingly competitive global economy. Current job and housing troubles are only a pause in a wave of growth that will carry the state in a rising tide of expansion over the next 10 years."
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