Bonds edge higher as stocks slip
Treasury prices climb as investors remain wary of stock market volatility, and await key economic reports.
NEW YORK (CNNMoney.com) -- Bond prices rose Monday as stocks retreated and a lack of fresh economic data kept many investors on the defensive.
The benchmark 10-year note rose 8/32 to 101 18/32, lowering its yield to 3.81% from 3.84% on Friday. Bond prices and yields move in opposite directions.
The 30-year long bond rose 16/32 to 101 1/32 and its yield fell to 4.43% from 4.46%.
The 2-year note was up 3/32 at 100 25/32 with a yield of 2.33%.
Meanwhile, stocks swooned as shares of government-sponsored lenders Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) fell 20% amid heightened concerns about the health of the financial services sector. The Dow Jones industrial average was down 1.5%, or about 180 points, near the end of the session.
The tone of the bond market has been set by "stocks' energy and headline news," said Bill Larkin, a portfolio manager at Cabot Money Management in Boston. But the mood was more forward-looking on Monday as the market is "getting lined up for PPI and housing data," later in the week.
On Tuesday, the Labor Department is set to release its July Producer Price Index, which measures prices of goods at the wholesale level. Economists are forecasting that prices rose 0.2% in July after climbing 1.8% the month before, according to consensus estimates gartered by Briefing.com.
Also on Tuesday, the Commerce Department will release data on July housing starts and building permits. Both indicators are expected to register declines.
While bondholders usually fret over signs of rising inflation, which erodes the value of fixed-income investments, Larkin said Tuesday's PPI report is already being "discounted" by the market as the "inflation problem starts to wane."
Oil and gasoline prices have come down significantly in recent weeks, and the U.S. dollar has staged a recovery, leading many investors to bet that inflation will soon begin to ease. 
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