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Bonds rise, dollar mixed
Government auction erodes bond market gains inspired by durable goods report.
April 27, 2005: 6:45 PM EDT

NEW YORK (CNN/Money) - Bond prices finished slightly higher Wednesday after a disappointing auction of new government debt eroded early market gains. The dollar was little changed.

After settling, the benchmark 10-year note gained 2/32 of a point to 98-5/32 to yield 4.23 percent as, up from 3:30 p.m. EDT Wednesday. The 30-year bond rose 4/32 of a point to 112-16/32 to yield 4.55 percent. Bond prices and yields move in opposite directions.

The two-year note remain unchanged at 100-7/32, yielding 3.06 percent Wednesday afternoon, while the five-year note climbed one tick, yielding 3.914 percent.

A lukewarm reception at Wednesday's sale of $24 billion of new two-year Treasury notes disappointed traders. The notes attracted bids of only 1.77 times the amount offered, the weakest demand since November 2003. Yields on the new notes reached a high of 3.65 percent.

Bonds climbed early in the session after the Commerce Department reported that new orders for durable goods posted their biggest drop since September 2002, down 2.8 percent. The February number was also revised downward to a 0.2 percent decline from a 0.5 percent increase.

The report painted a gloomy picture for factory and business spending plans, given that Wall Street had expected durable goods orders to climb 0.3 percent.

The specter of economic weakness indicated to traders that inflation was not an immediate threat and that the Federal Reserve would not feel compelled to speed interest rate hikes. Analysts had anticipated that the Fed would raise interest rates by a quarter percentage point during their meeting next week.

Bond traders fear inflation because it erodes the value of fixed-income paying investments.

"It's an ugly number -- you have a decline in March, you have a downward revision to the prior month," Christopher Low, chief economist at FTN Financial told Reuters.

"It is going to make economists slightly revise down first-quarter GDP, which they already did with the weaker consumer spending number."

The durable goods figures precede a number of economic reports due this week including the initial jobless claims report and Thursday's April GDP reading.

The dollar dipped slightly as the euro bought $1.2922, down from $1.2934 3:30 p.m. EDT Wednesday. The dollar climbed¥105.90, up from ¥105.74.

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