European Central Bank raises rates ahead of Fed

Treasury 10-year notes rose after the National Association of Purchasing Management-Milwaukee manufacturing index dropped to its lowest since October 2001 and stocks of several financial firms fell.

Citigroup Inc., Merrill Lynch & Co. and Lehman Brothers Holdings Inc. were among the firms that declined. The purchasing association's monthly index of regional manufacturing fell to 39, its fourth straight month below 50. A reading lower than 50 means the number of manufacturers that said business deteriorated was greater than the number saying it improved.
Treasuries earlier fell, extending the biggest quarterly decline since 2004, as inflation in the euro region rose to the highest in 16 years and oil advanced above $143 a barrel.
The retreat pushed 10-year yields up from a three-week low after a European Union report showed the rate of euro-region inflation climbed to 4 percent, bolstering the case for the European Central Bank to raise rates. Why are they ahead of us?

Crude oil for August delivery rose as much as $3.46, or 2.5 percent, to $143.67 a barrel in electronic trading on the New York Mercantile Exchange. It reached $142.99 a barrel on June 27 after the Fed left interest rates unchanged at 2 percent. The market continues to struggle with what to do with the rise in oil.