Market Analysis

Bonds are slightly worse this morning despite the Institute of Supply Management (ISM) Service Sector Index coming in slightly lower than expected and remarks during a speech last night by Fed Chair Bernanke last night that he believes the recent rise in commodity prices will be transitory. Other Fed Regional Presidents have been vocal about voicing their concerns about inflation and analysts are questioning at what point Bernanke will be forced to give in to them and begin increasing rates.

In international news, China increased its interest rates last night by 0.25% in an attempt to limit the risk of asset price bubbles in their economy. The one-year lending rate in China is increasing to 6.31% from 6.06%. On Thursday the European Central Bank is widely expected to increase its base rate to head off inflation in the region which is now at +2.6% and higher than its 2.0% target rate on inflation.