| Old conundrum, new twist
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| Inverted or flat, the yield curve points to a weaker Federal Reserve, not a downturn. (Full story)
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NEW YORK (CNN/Money) -
Longer-dated Treasury prices jumped Wednesday, lowering yields and narrowing the spread between short and long rates.
The dollar rose against the euro and traded near a 27-month high against the yen.
The benchmark 10-year note added 20/32 to 100-4/32 to yield 4.48 percent, down from 4.56 late Tuesday. The 30-year bond jumped 1-4/32 to 110-8/32 to yield 4.67 percent, down from 4.74 in the previous session. Bond prices and yields move in opposite directions.
In shorter-dated debt, the two-year note rose three ticks, yielding 4.40 percent. The five-year note was up 11/32, yielding 4.42 percent.
The Labor Department said the Consumer Price Index, a key inflation reading, edged higher 0.2 percent in October following a jump of 1.2 percent in overall prices in September, when gas prices soared in the wake of Hurricane Katrina.
That figure exceeded estimates, with economists surveyed by Briefing.com expecting the closely watched gauge to remain unchanged during the month.
But the so-called core CPI, which increased 0.2 percent, was in line with estimates. Core CPI excludes often-volatile food and energy costs.
Bonds, which are hurt by inflation because it erodes the value of the fixed-interest paying investments, rallied on the relatively tame inflation report.
"It is a relief to the market. There was fear of something worse," James Glassman, senior economist at J.P. Morgan, told Reuters. "The fact is that the core rate has stayed contained. The underlying inflation backdrop is not that worrisome."
Bond prices held on to their gains after the Treasury Department said net capital inflows surged to $101.9 billion in September, 40 percent higher than analysts had expected.
The spike in the price of longer-dated Treasuries helped flatten the spread between the benchmark 10-year note and shorter-dated debt, providing further support to the bond market.
The near inversion of the Treasury yield curve is spurring talk of an eventual slowing in the U.S. economy and an end to the Fed's rate hikes, Tony Crescenzi, chief bond market strategist at Miller Tabak + Co., wrote in a research note.
The Fed has steadily raised short-term rates since last June, but long-term rates have remained stubbornly low. An inversion of the yield curve, or short rates exceeding long rates, has signaled the start of a recession in the past.
In currency trading, the dollar rallied as the inflow data suggested foreign investors still have a hearty appetite for U.S. assets.
The euro bought $1.1683, down from $1.1721 late Tuesday. The dollar -- which neared its highest level against the yen since August 2003 -- bought ¥119.07, up from ¥118.82 in the previous session.
-- from staff and wire reports
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For updated bond charts, click here.
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