Housing woes spill into bond market

Washington -- Bond yields had their biggest decline in more than a month Wednesday, as investors fretted that a weak U.S. housing sector was a prelude to a recession.

Faced with a housing starts report that showed the fewest number of new homes in 14 years, investors embraced government debt, pushing the yield on 3-month U.S. Treasury bills down 25 basis points to 3.99 percent, The Financial Times reported. The yield on the two-year note fell 14 basis points to 3.98 percent.

"The continuing risks posed by the housing downturn and the credit crunch and the ensuing deceleration in activity across a number of districts increase the odds of the Fed cutting rates in October," Drew Matus, economist at Lehman Brothers, told the British newspaper.

Housing starts fell 10 percent and applications for building permits plunged to their lowest level since 1993, government statistics indicate. Building permits also slid 7.3 percent.

William O'Donnell, a strategist at UBS said the bond yields "is based on signs of accelerating stress in the housing sector,” which indirectly was becoming more apparent in other parts of the economy.

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