Bonds fall on Goldman profit
Demand for safe haven assets wanes after Wall Street heavyweight tops estimates. Wholesale prices surge 1.8%, raising inflation concerns.
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NEW YORK (Reuters) -- Treasury prices fell Monday after strong earnings from Wall Street's biggest surviving securities firm dampened demand for safe-haven U.S. government debt.
Goldman Sachs (GS, Fortune 500) Group Inc said quarterly earnings surged 33% on strong trading results, trouncing expectations and continuing an extraordinary rebound from the near meltdown of the U.S. banking industry last fall.
Just nine months after the U.S. Treasury bailed out the nation's largest banks with $125 billion of taxpayer money, Wall Street's biggest surviving securities firm easily topped analysts' estimates, thanks to trading in improving markets.
Goldman, the first major U.S. bank to report second-quarter results, on Tuesday reported net income for common shareholders of $2.7 billion, or $4.93 a share. Analysts had forecast earnings of $3.49 a share, according to Reuters Estimates.
"Goldman Sachs' earnings were a blowout, beating analysts' estimates by more than a dollar a share," said William Sullivan, chief economist at JVB Financial Group in Boca Raton, Fla. "That's emblematic of a healing process in the financial system that could reduce the demand for high quality assets such as Treasurys."
The report gave investors incentive to sell after a month-long rally.
"We had a solid rally that took the 10-year note yield down from 4% in June to roughly 3.25% late last week," Sullivan said. "The market was ripe for some profit-taking and some of the retreat this week is attributable to that."
The 30-year bond traded 2-4/32 lower in price for a yield of 4.36%, up from 4.23% late Monday, while the benchmark 10-year Treasury note traded 29/32 lower for a yield of 3.46% from 3.35%.
John Spinello, senior vice president and chief fixed-income technical strategist at Jefferies & Co in New York, said 10-year yields would find support at 3.44%, with the next major support level at 3.49%.
Economic data released by the government also triggered some modest selling pressure, analysts said.
"Some people set up short positions against the backdrop of that PPI (Producer Price Index) release, which showed far more inflation than the Street was looking for," Sullivan said.
June producer prices rose 1.8%, double economists' consensus forecast, the government said.
That's a negative for Treasurys because inflation erodes the value of fixed-income investments.
Economists were skeptical of the one-month jump in producer prices, however.
"The underlying trend in core PPI is downward and will remain so for at least another year," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "There's no inflation risk here."
U.S. retail sales also rose a stronger-than-expected 0.6% in June, the government reported. But economists at Goldman Sachs said their measure of "core" retail sales -- excluding auto sales, building materials and gasoline -- was actually down 0.1% for the month, "putting retail spending on a weak track heading into the third quarter."
The Fed bought $7.5 billion in Treasurys maturing May 31, 2011, to April 30, 2012. On Thursday, the central bank will buy 20-year TIPS. 
