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Bonds fall after PPI
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November 10, 1999: 9:17 a.m. ET
Treasury traders focus on signs of inflation despite overall price dip
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NEW YORK (CNNfn) - Treasury prices fell Wednesday after a government report showing some producer prices rose at a greater-than-expected rate last month rekindled fears of rising inflation.
The dollar was up slightly against the yen and little changed against the euro.
Overall producer prices dropped 0.1 percent in October, a dip suggesting the economy may be cooling enough to keep the Federal Reserve from raising interest rates next week.
But the bond market chose to focus on news that the core PPI, which excludes the volatile food and energy sector, rose at a greater-than-expected 0.3 percent, suggesting some inflation pressure exists.
Bonds, which initially rose after the report, erased those gains. Just before 9:10 a.m. ET, the price of the benchmark Treasury bond fell 9/32 to 100-13/32; its yield, which moves inversely to the price, rose to 6.09 percent from 6.07 percent.
Analysts reacted differently to the report.
"Inflation is down, there's nothing here to make the Federal Open Market Committee doing anything next week," James Smith, chief economist at the National Association of Realtors, said of the Fed's policy making committee.
But Bruce Alston, who manages $1.5 billion in bonds for Value Line Asset Management, said the Fed has enough reason to hike rates Nov., 16.
"I think they will and I think they should," Alston said, predicting that this last rate hike of the year could pave the way for a bond rally.
If anything, Wednesday's report helped confirm that September's PPI surge of 1.1 percent, the biggest monthly increase in more than 9 years, may have been an aberration.
In the day's other economic indicator, the number of Americans filing for jobless benefits fell to 285,000 from a revised 290,000 the previous week.
The figure, released one day early ahead of the Veterans Day holiday, is consistent with the low unemployment and tight labor market that have existed for years.
Bond prices have risen for most of November, pushing the yield to six-week lows, as signs of a slowing economy led some analysts to believe the Federal Reserve may not need to raise interest rates.
The Fed twice raises interest rate this past summer to cool an overheating economy and pre-empt inflation.
Ahead Wednesday, the Treasury Department auctions $10 billion in 10-year notes. This comes after Tuesday's sale of $15 billion in five-year notes drew lackluster demand.
Traders Wednesday will also be watching oil prices, which have rebounded recently. The price of benchmark Brent crude for December delivery surged 22 cents to $24.35 per barrel in morning trade -- its highest level in 34 months -- before settling back to trade around $24.18.
Dollar mixed
The dollar rose against the yen but was little changed versus the euro Wednesday.
The yen's weakness followed news that the Japanese government increased the size of a long-awaited economic stimulus package Wednesday to around $162 billion.
The dollar rose to 105.07 yen from 104.89 late Tuesday, a 0.19 percent gain in the dollar's value.
But the U.S. currency was little changed versus the euro. It cost $1.0402 to buy one euro, compared with $1.0405 Tuesday.
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