UPDATE 3-Treasuries retreat, fearful of inflation suprises
Mon Apr 18, 2005 04:02 PM ET
(Adds comments, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, April 18 (Reuters) - U.S. Treasury debt prices eased on Monday as investors turned cautious ahead of key inflation data that could quickly alter the outlook for interest rates.
An upside surprise on prices, traders noted, could rapidly shift the market's focus away from the risk of an economic slowdown and toward greater consideration of inflationary pressures.
"Things could definitely shift," said Bill Hornbarger, chief fixed-income strategist at A.G. Edwards & Sons in St. Louis.
With that in mind, dealers tentatively pushed the benchmark 10-year note (US10YT=RR: Quote, Profile, Research) 6/32 lower for a yield of 4.27 percent, up from 4.25 percent on Friday and a fresh two-month low of 4.20 percent hit in overnight trade.
The Labor Department is scheduled to release producer price data on Tuesday, followed by consumer prices on Wednesday.
Market attention in both reports will be concentrated on core prices, which exclude the more volatile food and energy sectors and are therefore more closely watched by policy-makers.
Both core producer and consumer prices are expected to have grown 0.2 percent during March, and any number above that level could set Treasuries back significantly after the latest rally.
High inflation would mean the Fed might have to be more aggressive in raising interest rates than the market currently expects, to the detriment of bond prices.
A steadying stock market after last week's tumble was sapping some interest in government debt, albeit in a gradual manner.
In afternoon trade, five-year Treasury notes (US5YT=RR: Quote, Profile, Research) slipped 4/32 in price to yield 3.91 percent, while the 30-year bond (US30YT=RR: Quote, Profile, Research) price was flat for a yield of 4.60 percent.
Two-year notes (US2YT=RR: Quote, Profile, Research) were down 2/32 with a yield of 3.54 percent, from 3.49 percent on Friday.
Fed Governor Susan Bies said on Monday that the Fed must step up its vigilance against inflation, but indicated that she believed "measured" interest-rate rises could control it.
Bies said that long-term inflation expectations appear well contained, but added: "Inflation pressures have risen somewhat in recent months," and bear watching.
The Fed's policy-setting Federal Open Market Committee has steadily raised interest rates since last June, lifting its federal funds rate seven times in quarter-percentage point increments to a current level of 2.75 percent.
Bies also said she thought concern was overdone that consumers might be excessively burdened by debt and unable to keep up the spending that supports economic growth.
"She believes the economy is still very strong -- the Fed has obviously lost touch with the markets," quipped Andrew Brenner, head of fixed-income at Investec U.S.
It was exactly a loss of faith in economic growth prospects last week that helped shove bond yields down more than 20 basis points to their lowest levels since February.
Investors even started pondering a possibility that had earlier been dismissed out of hand -- that the U.S. central bank might choose to pause its monetary tightening campaign at some point this summer.
But again, runaway inflation could change all that, so investors will have their eyes glued to their screens as the latest figures are published.
© Reuters 2005. All Rights Reserved.
mi sembra oltre misura saggio ed utile 
- occhio che domani c'è PPI, e mercoledi CPI US, ci sarà da ballare 
... e che cazzz !!! 
provo domani Fleu
