Treasuries mixed as tame inflation carries day
Tue Aug 2, 2005 11:18 AM ET
(Adds factory orders data, quotes; updates prices)
NEW YORK, Aug 2 (Reuters) - U.S. Treasury debt prices were mixed on Tuesday as tame inflation data provided relief to a market that had been bracing for signs of resurgent inflation since last week.
Another report showed June factory orders came in firm, as expected, providing further evidence that third-quarter growth was starting out on a robust note. But traders said the market was mostly reacting with relief to the inflation data.
Meanwhile, news from London of British police sealing off an area around a bus did nothing to stoke flight-to-safety bidding in the U.S. Treasury bond market, which often attracts buyers at times of heightened security concerns.
"The markets don't seem to react to these kind of things any more. It's a sign of the times, I suppose," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., referring to the latest security incident in London.
Benchmark 10-year notes (US10YT=RR: Quote, Profile, Research) were off 3/32 to yield 4.33 percent. Two-year notes (US2YT=RR: Quote, Profile, Research) were steady with a yield of 4.04 percent.
The five-year note (US5YT=RR: Quote, Profile, Research) was also steady, yielding 4.15 percent, while the 30-year bond (US30YT=RR: Quote, Profile, Research) was 11/32 lower for a yield of 4.53 percent, compared with 4.51 percent on Monday.
INFLATION RELIEF
The U.S. government said the core personal consumption expenditures price index, the Federal Reserve's preferred measure of inflation, was flat in June, below economists' expectations of a 0.1 percent increase and May's 0.2 percent climb.
"The dominant influence today is the PCE deflator being unchanged. It was a very benign reading," Crescenzi said.
The market traded lower early in the session and was bracing for an upside surprise following last Friday's upward revisions to 2004 core PCE data from the Commerce Department.
Inflation erodes the value of bond investments, so any sign of surging inflation inspires selling.
But even though the year-on-year core PCE in Tuesday's data was a positive 1.9 percent, traders said recent months of tame inflation readings helped the market keep its focus on the monthly, instead of the year-on-year, data.
June factory orders came in at a 1.0 percent increase, matching economists' expectations.
"This is another sign that the manufacturing sector is positioned for an upswing in the third quarter. Orders have increased four months in a row," said Lynn Reaser, chief economist at Banc of America Capital Management in Boston.
"Inventories are now quite low; as they are rebuilt, they should contribute support in the summer quarter."
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