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Inflation watch Fed leaders speak

NEW YORK (CNN/Money) - Treasury prices rose Thursday as a disappointing manufacturing report and comments from the managing director of the nation's largest bond fund brought the possibility of an end to the Fed's rate-hiking campaign back into focus.

An ongoing SEC investigation into GM also helped end a three-session selloff as investors fled to the safe-haven investment.

The dollar fell against the euro and yen.

The benchmark 10-year note gained 7/32 to 97-19/32 to yield 4.55 percent, down from 4.59 percent late Wednesday. The 30-year bond added 13/32 to 108-29/32 to yield 4.76 percent, down from 4.80 percent. Bond prices and yields move in opposite directions.

In shorter-dated debt, the two-year rose one tick to yield 4.34 percent while the five-year note gained 4/32 to yield 4.42 percent.

Bond prices rose Thursday after the Commerce Department said orders for durable goods, a leading indicator of manufacturing activity, declined a sharp 2.1 percent in September. Economists had predicted a fall of 1.2 percent, according to Briefing.com.

The slowdown in manufacturing could indicate a slowing economy, which may ease some inflationary pressure. Inflation hurts bonds as it erodes the value of the fixed interest-paying investment.

Bill Gross, managing director of the Pimco bond fund, also fueled positive sentiment Thursday, saying that the appointment of Ben Bernanke to the helm of the Fed would be good for keeping bond yields low. "I view him favorably, especially his views on inflation targeting," Gross wrote in commentary on Pimco's Web site.

Gross also predicted Bernanke would stop hiking interest rates early next year. "We are due for what appears to be a 2 percent or less gross domestic product growth rate in 2006, a rate sure to stop the Fed and to induce eventual ease at some point later in the year," he wrote.

Expectations that the Fed would keep raising interest rates into next year have weighed on bond prices the last few weeks, and uncertainty over Bernanke's inflation-fighting credentials triggered a spate of selling Monday that resulted in three straight sessions of declines.

The Fed has raised rates 11 times since the end of last June, bringing the fed-funds rate to 3.75 percent. Rising interest rates tend to hurt bond prices, as they make newer, higher-interest paying investments more attractive.

Thursday's rise in prices brought yields on the 10-year back down from seven-month highs reached Wednesday.

Treasuries also ticked higher on news that the Securities and Exchange Commission has subpoenaed records from embattled automaker General Motors over its accounting practices.

In New York, stocks slumped as the SEC investigation into the Dow component rattled investors. But Treasuries, which are considered a safe-haven investment for those seeking to avoid risk, got a lift from flight-to-safety buying.

In currency trading, the dollar fell as confidence in the U.S. economy waned on the GM investigation and weak durable goods order.

The euro bought $1.2138, up from $1.2069 late Wednesday. The dollar bought ¥115.47, down from ¥115.85 in the previous session.

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