TREASURIES-US bond prices edge up in year-end trade
Mon Dec 18, 2006
By John Parry
NEW YORK, Dec 18 (Reuters) - U.S. government bond prices inched up on Monday in year-end positioning as investors awaited housing and inflation data due on Tuesday.
Since slipping to a 10-month low earlier this month around 4.40 percent, the benchmark 10-year note's yield has rebounded nearly 20 basis points higher as some economic data have suggested a gentler deceleration for the U.S. economy than bond investors had previously thought.
Yet questions remain about how much of an impact the cooling housing market may have on the broader economy.
At 1 p.m. (1800 GMT), traders will pay attention to December's National Association of Home Builders/Wells Fargo Housing Market index, forecast to rise to 34 from a 31 reading in November. The index was at 30 in September, the lowest since 1991 when the economy was slipping into recession.
"The index was on such a downward path, but seems to have hit bottom in September and to have started to stabilize," said Gerald Lucas, senior investment strategist with Deutsche Bank in New York. A shift of that view could move the bond market, he said.
The benchmark 10-year note <US10YT> was up 2/32 in price for a yield of 4.59 percent, versus 4.60 percent late on Friday. Bond yields and prices move inversely.
Trade was muted as market participants stood back, strategists said.
"A lot of books are already closed for the year," said Mario DeRose, fixed-income strategist at Edward Jones in St. Louis.
"People are already settled in and not looking to make too many changes unless we get major surprises in the (economic) numbers," DeRose added.
The fixed-income market's focus on inflation has intensified since data on Friday that showed U.S. consumer prices were unexpectedly unchanged in November from the previous month, which sent the benchmark 10-year note's yield down by its biggest one-day margin in three months at one point.
"I think the big releases of the week will be PPI and housing starts on Tuesday," said Matthew Moore, economic strategist with Banc of America Securities in New York.
The median forecast of economists in a Reuters poll is for the November headline Producer Price Index to rise 0.5 percent and for the core CPI, excluding food and energy, to rise 0.2 percent. November housing starts are expected to rise to an annual pace of 1.530 million units from October's pace of 1.486 million.
The two-year note <US2YT> -- which responds closely to expectations for Federal Reserve interest-rate moves -- was unchanged in price for a yield of 4.72 percent, down from 4.73 percent on Friday.
Bond prices hardly budged after the U.S. third-quarter current account deficit was reported in line with expectations at $225.55 billion.
Among Federal Reserve officials, Dallas Fed President Richard Fisher is due to speak on Tuesday while Richmond Fed President Jeffrey Lacker is scheduled to speak on Thursday.
The 30-year bond <US30YT> was up 5/32 in price for a yield of 4.71 percent.