NEW YORK (CNNfn) - Treasury bond prices rose nearly a point Friday after a government report suggesting tame inflation eased fears of a Federal Reserve interest rate hike next month.
The producer price index, a key gauge of prices at the wholesale level, rose at a greater-than-expected rate in August. But the gains, the government said, were limited largely to one sector: energy prices.
Bonds, ever sensitive to rising inflation, soared on the news. Just before 3:30 p.m. ET, the price of the benchmark 30-year Treasury bond rose 28/32 to 101-9/32. Its yield, which moves in the opposite direction from the price, fell to 6.03 percent from 6.09 percent Thursday.
"I think for all intents and purposes you really have to rule out a Fed rate hike Oct. 5," said Richard Yamarone, senior economist at Argus Research.
For economists, Friday's report is a kind of second leg among three closely watched inflation gauges. In the first, last Friday's employment report for August came in weaker than expected. And next week, traders get a look at prices on the consumer level with the release of the August consumer price index.
"I think investors would be more sensitive to the CPI data that would come out next week," said Hussein Malick, fixed-income analyst at J.P. Morgan. "Because that is likely to have a more direct impact on what Fed is going to do at the October meeting."
Based on the data he has seen thus far, David Jones, president and chief economist of Aubrey G. Lanston, foresees no rate hike Oct. 5.
But he won't rule out a tightening at the Fed meeting after that.
"We get a lot of important data in the last week of October and the first week in November, particularly the employment cost index for the third quarter," Jones said. "That's going to be a key indicator for the Fed. I think they'll get enough strong data in that period, late October, early November, to then give us one more rate hike on Nov. 16."
Still, despite Friday's good news on inflation, bonds face a host of negatives. These include rising oil prices, a weakening dollar and a series of other reports showing strength in housing, factory orders and manufacturing activity.
Further weighing on bonds is September's estimated $30 billion corporate bond calendar, which has traders fearing that Treasurys, which offer lower yields, will become less attractive in the weeks ahead.
Dollar recovers
The dollar, after falling to a three-year low against the yen Thursday, moved higher Friday. This came after the Bank of Japan intervened in the currency market to prop up the sagging dollar against the yen.
The strengthening yen worries officials on both sides of the Pacific. In Japan, the rebounding yen could make exports less attractive, slowing the nation's economic recovery. U.S. official fret about rising import prices, which could exacerbate inflation.
Just before 3:30 p.m. ET, the dollar rose to 108.81 yen from 108.03 Thursday.
The dollar, meanwhile, also climbed against the euro. Just before 3:30 p.m. ET, it cost $1.0362 to buy a euro, from $1.0537 Thursday, a 1.63 percent rise in the dollar's value.
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