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Bonds fall, but inflation data cushions
Treasuries dip on data showing factory growth; dollar falls.
August 2, 2005: 4:14 PM EDT
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NEW YORK (CNN/Money) - Bonds and the dollar dipped Tuesday after data showed strength in U.S. factories in June, while a key inflation reading came in better than expected, cushioning the blow to Treasuries.

The benchmark 10-year note fell 5/32 of a point to 98-10/32, to yield 4.34 percent, up from 4.32 late Monday. The 30-year bond lost 16/32 of a point to 112-16/32, to yield 4.54 percent, up from 4.51 percent the previous session. Treasury prices and yields move in opposite directions.

In shorter-dated debt, the five-year note edged lower 2/32 to yield 4.17 percent, while the two-year note was down one tick, yielding 4.05 percent. Yields on the two-year note haven't crossed the 4 percent mark in more than four years.

The PCE core deflator, which measures the inflation rate for personal spending expenditures, was flat in June, the government said. Economists surveyed by Briefing.com had expected the broad-based measure of inflation to edge higher 0.1 percent.

That tame figure suggests inflation -- which hurts bonds as it erodes the value of the fixed-interest paying investments -- is in check.

The Commerce Department also said consumer spending advanced a robust 0.8 percent in June as shoppers took advantage of steep discounts on auto sales. That rise matched consensus estimates.

Personal income in June also gained 0.5 percent, the government said. That was slightly stronger than the 0.4 percent rise that economists had expected.

June factory orders came in at a 1.0 percent increase, meeting economists' expectations. Growth was 2.9 percent in May.

"This is another sign that the manufacturing sector is positioned for an upswing in the third quarter," said Lynn Reaser of Banc of America Capital Management.

In currency trading, the dollar fell against the yen and euro. The dollar bought ¥111.44, down from ¥112.17 late Monday, while the euro bought $1.2197, up slightly from $1.2187 in the previous session.

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