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Dollar, not PPI, hits bond
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July 10, 1998: 9:33 a.m. ET
Producer prices don't surprise, but currency gains against greenback do
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NEW YORK (CNNfn) - The bond market waited all week to hear news on inflation, with Friday's producer price index for June, but the news struck with a dull thud as traders turned their focus back on the dollar's moves.
The 30-year benchmark Treasury was down 5/32 of a point in price, yielding 5.61 percent, after the Commerce Department said the PPI fell 0.1 percent last month.
The long bond opened flat in U.S. trading Friday, but a faster-than-expected rise in the PPI's core rate -- which excludes volatile food and energy prices -- and dollar softness in the currency market dragged on the bond.
The Japanese yen, after falling to nearly 142 to the dollar amid concerns a tax cut plan could be in jeopardy as a result of Sunday's election there, is now up 0.33 yen at 140.74 to the dollar.
The German mark was up 0.82 pfennig at 1.82 to the dollar on signs Russia may soon get a credit deal from the International Monetary Fund. Germany is a key Russian creditor.
Bond traders will be eyeing the PPI's sister report, the consumer price index, next week. The CPI, one economist said, has shown a bit of inflationary pressure this year.
"The services sector is showing some inflationary pressure, and wages are starting to climb," said William Hummer, an economist with Wayne Hummer Investments, while producer-level prices have stayed low following Asia's market jitters.
"The Asian shock is creating a deflationary effect throughout many commodities, and in energy," he said.
"If the economy continues to grow at a three percent rate…[the Federal Reserve ] may indeed raise rates in the fall," which would affect bonds, he said. 
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