Bonds mixed on inflation, housing
Producer price report pushes Treasurys lower, but weakness in the housing market spurs demand for the perceived safety of government-backed debt.
NEW YORK (CNNMoney.com -- Bond prices were mixed Tuesday as investors appeared torn between inflation concerns and fresh signs of economic weakness stemming from the ailing housing market.
The benchmark 10-year note was down 5/32 at 101 11/32 lifting its yield to 3.83% from 3.81% late Monday. Bond prices and yields move in opposite directions.
The 30-year long bond fell 14/32 to 100 17/32 with a yield of 4.46%, up from 4.43%.
The 2-year note edged up 2/32 to 100 27/32 with a yield of 2.31%.
"There are a lot of crosscurrents out there," said Bob Brusca, chief economist at Fact and Opinion Economics in New York.
A report on inflation at the wholesale level and another bleak reading on the housing market have the bond market "frozen where it is," he said.
The Labor Department reported that its Producer Price Index for finished goods rose 9.8% in the 12 months that ended in July, the fastest rate of increase since 1981. The month-over-month increase was 1.2%, twice the consensus forecast of economists surveyed by Briefing.com.
The so-called core PPI, which excludes food and energy prices, rose by 0.7% in July - exceeding the 0.2% increase analysts had expected.
Separately, the Census Bureau's monthly report on new home construction showed housing starts in July plunged 11% to an annual rate of 965,000 from a revised 1.084 million pace in June.
Housing permits, often seen as a sign of builders' confidence in the housing market, sank 17% during the month.
Both housing starts and permits were at 17-year lows.
"High inflation looks like a problem. But the weak housing starts look like an opportunity," Brusca said.
Inflation is a concern for bondholders because it erodes the value of bonds' fixed interest payments. But the housing report, which suggests that the economy will continue to struggle, supports bond prices because they are seen as relatively safe investments during times of economic duress.
"The bond market is trying to balance these things," Brusca said. 
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