Bonds jump on soft inflation read

NEW YORK (CNNMoney.com) -- Treasurys took a big leap Tuesday as the Producer Price Index indicated that inflation was not accelerating as some had feared.

The dollar fell slightly against the euro and the yen.

Core producer prices fell by their greatest amount in 13 years, which pushed the yield on the 10-year to its lowest level since September.

The core producer prices fell by their greatest amount in 13 years, which pushed the yield on the 10-year to its lowest level since September.

The benchmark 10-year Treasury rose 10/32, or $3.12 on a $1,000 note, to yield 4.57 percent, versus 4.60 Monday. Bond prices and yields move in opposite directions.

The 30-year bond price gained 21/32, yielding 4.66 percent, down from 4.71 in the previous session.

The five-year note added 5/32, yielding 4.56 percent, while the two-year was up one tick to yield 4.74 percent.

The overall Producer Price Index fell 1.6 percent, matching a record fall in October 2001 and more than three times the 0.5 percent decline that had been forecast by Wall Street economists. That followed a 1.3 percent drop in September and implied there were reduced inflationary pressures to fear bubbling into retail prices. (Full story)

Core producer prices that exclude food and energy costs, which are more closely watched by analysts, plunged 0.9 percent - the largest fall since a 1.2 percent drop in August 1993. That was in sharp contrast with forecasts for a 0.1 percent rise in core prices and followed a 0.6 percent rise in September core prices.

The report helped convince many investors that the Federal Reserve will not raise interest rates again any time soon and could even move to cut rates next year.

Traders are now looking for further market direction to the next round of inflation data on Thursday, with the release of the October consumer price index.

"The data today was weaker than most expected, but we still have CPI on Thursday and we could go right back to where we were before," Joseph Shatz, government strategist at Merrill Lynch Government Securities in New York, told Reuters.

In currency trading, the euro bought $1.2811, up slightly from $1.2835 Monday, while the dollar bought ¥117.59, down from ¥117.86 in yesterday's session.

-- from staff & wire reports

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