The U.S. current account trade deficit jumped to an all-time record high in the fourth quarter, rising to $225 billion–up 21% from the third quarter the Bureau of Economic Analysis reported yesterday. With the latest numbers, the tally for 2005 is in, and the red ink for last year has pushed higher to another unprecedented level. Indeed, last year’s deficit was a record in both absolute-dollar and relative terms (as a % of the economy).
If you thought any of this would cast a pall over the mood of bond traders by suggesting higher interest rates, think again. In fact, the fixed-income set found reason for hope (such as it is from the view of a bond trader). As a result, buying was in evidence on Tuesday, and so the benchmark 10-year Treasury yield retreated sharply yesterday, falling to just under 4.70% from nearly 4.78% the day before.
One might argue that yesterday’s decline in yield was merely a temporary pullback in an otherwise rising trend in the price of money for long-dated bonds of late. The 10-year yield was under 4.3% at one point in January, but as of Monday it was threatening to break above 4.80%.