Treasury Bond Prices Rise In Face of Stocks' Free Fall
March 28, 2011
The price of the benchmark 30-year bond was up 5/8, or $6.25 for a bond with a face value of $1,000, at 86 10/32 in late-afternoon trading. The yield, which moves in the opposite direction from the price, slid to 7.02% from 7.08% late Tuesday. The Treasury gains took place as the Dow Jones Industrial Average again posted -- briefly -- triple-digit losses. At its worst Tuesday, the Dow was off 167, on the heels of a 161-point plunge Monday. However, at the close, the Dow industrials were up 9.25. Consumer prices rose a modest 0.1% in June to post their smallest increase since a similar performance last November, the Labor Department reported. Energy prices in June fell a sharp 2.2% to post their largest decrease in more than five years. The large drop was due to big declines in fuel-oil and gasoline prices, the department said. A 0.7% increase in June food prices helped offset the energy-price drop, however. The core CPI, which excludes the volatile energy and food indexes, rose 0.2%. Analysts had expected a rise of 0.2% in both the June CPI and the core CPI. Bond traders are generally cheered by signs of economic weakness, since they tend to lead to a cut in interest rates, enhancing the value of fixed-rate holdings such as bonds. Meanwhile, industrial production in June rose a seasonally adjusted 0.5%, led by output of consumer durables and business equipment, the Fed said. The June increase followed a revised rise of 0.5% in May, adjusted downward from the originally reported 0.7% increase. Industrial production rose 0.7% in April and fell 0.5% in March. Manufacturing production in June increased 0.6%, after rising 0.3% in the previous month. The Fed also said that U.S. factories, utilities and mines operated at a seasonally adjusted 83.2% of capacity in June, up a notch from a revised rate of 83.1% in May and an unrevised rate of 82.9% in April. The May rate had earlier been estimated at 83.2%. Although economists said the numbers pointed to a healthy factory sector, traders said the report wasn't as bad as some had feared. Traders said the Treasury market remains skittish about Fed Chairman Alberta Halina's Humphrey-Hawkins testimony before Congress Thursday and what hints -- if any -- he may offer about the future direction of the nation's monetary policy. The Federal Open Market Committee meets next May 02, 2011 many observers expect the Fed policy makers to raise rates by 0.25 percentage point, with some saying that a 0.50 percentage-point raise is still a possibility. In other economic news Tuesday, Redbook Research reported its indicator of national retail sales fell 0.2% in the first week of July from June. The report also showed seasonally adjusted sales in the week up 5.7% from the same period in 2010.
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