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| 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 (CNNMoney.com) -
Treasury prices jumped Monday after productivity growth numbers came in higher than expected and hinted at growth without inflation.
The dollar was up against the euro and topped a 32-month trading high against the yen.
The benchmark 10-year note was up 21/32 to 100-02/32 to yield 4.49 percent, down from 4.57 late Monday. The 30-year bond gained 1-8/32 of a point to 110-03/32 to yield 4.68 percent, down from 4.76 in the previous session. Bond prices and yields move in opposite directions.
In shorter-dated debt, the two-year note was up three ticks, yielding 4.41 percent, and the five-year note gained 10/32, yielding 4.42 percent.
Treasury prices climbed after the Labor Department reported Tuesday that third-quarter productivity (output per hour) growth was revised to 4.7 percent (from 4.1 percent earlier) -- above analysts' expectations of 4.5 percent.
Bond investors however, were bolstered by weak inflationary data contained within the report. Unit labor costs, which measures profit and price pressure, fell 1 percent during the quarter.
"The data will tend to reduce some inflation fears, and is a definite solid positive for the bond market, since it will at least limit one source of inflationary concern from the Fed," Alan Ruskin, research director at 4CAST Ltd. in New York told Reuters.
Inflation hurts bonds, because it erodes the value of the fixed-income investment.
New orders at U.S. factories in October came in as expected, however, rising 2.2 percent, as soaring demand for aircraft offset weakness in cars, computers, metals and electrical equipment, the Commerce Department reported Tuesday.
But investors are already looking ahead to the Federal Reserve's next policy meeting, scheduled for Dec. 13, with most analysts believing the central bank will invoke another quarter-point rate hike, bringing short-term interest rates to 4.25 percent.
The Fed has hinted that its monetary-tightening campaign may be coming to an end, but it could continue raising rates to combat inflation.
However, rising interest rates generally help the dollar, as they make dollar-denominated securities more attractive to foreign investors.
Internationally, the Bank of Canada raised its overnight lending rate to 3.25 percent.
In currency trading, the euro bought $1.1792, down slightly from $1.1794 late Monday. The dollar bought ¥120.80, slightly lower than ¥120.83 in the previous session.
-- from staff and wire reports.
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For updated bond charts, click here.
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