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Bonds celebrate CPI
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July 15, 1999: 9:25 a.m. ET
Omens of subdued inflation give bond market a lift, but dollar recoils
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NEW YORK (CNNfn) - Bond prices surged early Thursday after the morning's supply of economic data showed a lack of inflation and continued breathing room for the labor market.
Shortly before 9 a.m. ET, the bellwether 30-year Treasury bond rose 12/32 of a point in price to 91-4/32. The yield, which travels in the opposite direction, eased to 5.88 percent.
Traders said consumer price index (CPI) and jobless claims reports released mid-morning were both benign, giving the once-gloomy bond market another burst of enthusiasm. The CPI came in unchanged for June, indicating that retail inflation remains nearly nonexistent. The level was unchanged in May as well, but the bond market had braced itself to see an upturn of 0.1 percent.
Excluding the volatile energy and food sectors, the CPI also came in tamer than investors had expected, rising only 0.1 percent where the market had looked for 0.2 percent.
Bond traders' enthusiastic reaction to the data was a bullish contrast to Wednesday, when bonds retreated following the release of a similarly inflation-negative producer price index (PPI) reading for June.
Traders said Thursday the Treasury debt market had already factored in the PPI in the form of the Argentine safety bid earlier in the week, but the CPI data were a surprise worthy of more extended buying. Bonds soared Monday after rumors that Argentina would default on its overseas debt unhinged Latin American financial markets and spurred a flight to the stability of Treasury bonds.
Jobless claims data issued at the same time as the CPI gave bonds additional backbone. According to the Labor Department, initial jobless claims -- a key indicator of layoffs and, more generally, competition for jobs or workers -- climbed to 310,000 from a revised 294,000 in the past week, a pleasantly better-than-expected result for investors looking for a smaller increase to 295,000.
Federal Reserve Chairman Alan Greenspan and others have warned that broad inflationary forces most likely will return to the U.S. economy through the labor market as the number of available positions grows, forcing employers to raise wages to attract workers. Thus, a large number of jobless claims relieves inflation-wary investors by showing that some slack remains in the job market.
Dollar drifts lower
The dollar, meanwhile, got little support from the morning's economic data. The Federal Reserve raises U.S. interest rates to counteract rising inflation, but the signs that inflation remains dormant offered little hint that the Fed will need to act again any time soon.
High interest rates make the dollar more valuable by increasing the cost of dealing in U.S. currency.
In early trading, the dollar slipped to 120.40 yen from its previous close of 120.72, while wary speculators kept one eye on the Bank of Japan (BOJ) for signs of currency intervention.
However, although the BOJ bought dollars and euros alike on numerous occasions in June to keep its boisterous yen currency under wraps, the Japanese central bank has taken a quieter stance recently, leading some traders to wonder whether the yen may be free to rally on its own.
Japanese monetary authorities repeatedly have warned against a strong yen as being detrimental to their nation's tentative economic recovery. A strong yen would starve Japan's crucial manufacturing sector of export revenue, leaving overall inflows depressed.
The euro climbed to $1.0238 from its previous close of $1.0201, gathering strength from the European Central Bank's decision to leave European interest rates unchanged. Fear of a euro-zone rate cut has added to the euro's multitude of difficulties in recent months, keeping the currency drifting from low to low. 
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