NEW YORK (CNN/Money) -
Treasury prices fell Friday after a jump in U.S. retail sales and a speech by Federal Reserve Chairman Alan Greenspan persuaded bond investors that the central bank would continue to push interest rates higher.
In late afternoon trading, the benchmark 10-year note fell 8/32 to 101-17/32 for a yield of 4.06 percent, compared with 4.02 percent on Thursday. The 30-year bond was down 12/32 at 107-23/32, yielding 4.85 percent, up from 4.82 percent late Thursday.
Five-year notes fell 9/32 to 100-9/32 to yield 3.31 percent, up from 3.26 percent on Thursday, while the two-year notes were down 3/32 at 99-30/32, their yield rising to 2.52 percent from 2.51 percent.
Bond prices and yields move in opposite directions.
In his remarks, Greenspan said record oil prices were unlikely to cause the economic pain they did in the 1970s and that he thought the world could adjust to higher-priced oil.
"The impact of the current surge in oil prices, though noticeable, is likely to prove less consequential to economic growth and inflation than in the 1970s," Greenspan said in remarks prepared for delivery to a luncheon sponsored by the National Italian American Federation.
Bond prices retreated on his remarks, although in afternoon trade, some of those losses were erased as oil resumed its climb. U.S. oil hit $55 a barrel on Friday on concern about heating oil inventories ahead of winter.
"There (was) nothing in (the speech) to suggest that the rise in oil prices will sway the Fed from their appointed rounds -- that means they're going (to raise interest rates) in November and possibly in December," said one trader at a primary dealer of U.S. government securities.
Drew Matus, senior financial economist at Lehman Brothers, said bonds also retreated on the Greenspan remarks because the market interpreted the speech as saying higher oil prices are a long-term energy problem -- as opposed to a transitory problem -- implying a longer-term pickup in inflation pressures.
Greenspan said so far this year, the rise in the cost of imported oil amounted to about 0.75 percentage point of gross domestic product.
Greenspan said the risk of more serious negative consequences for the economy would intensify if oil prices moved materially higher. But over the long run, market forces and technological advances would likely provide the world with adequate oil supply as it eventually transitions to other energy sources.
Light crude hit a record high of $55 a barrel on Friday, but Greenspan noted that on an inflation-adjusted basis, prices remain well below the February 1981 peak.
As oil prices surged, the bond market had begun to wager more heavily that the central bank would soon pause in its rate hike campaign, begun in June. But Greenspan's remarks, the strong retail sales report and a bigger-than-expected rise in the September core producer price index dashed some cold water on those hopes, analysts said.
The Fed has been widely expected to raise overnight borrowing costs a quarter-percentage point to 2 percent at its next policy meeting on Nov. 10.
Josh Stiles, senior bond strategist at IDEAglobal, said the September retail sales data supported Greenspan's view -- expressed in recent congressional testimony -- that the economy was working through a soft patch and was gaining traction.
The market paid little heed to figures on industrial production and consumer sentiment. The University of Michigan's preliminary read of confidence for October fell more sharply than expected, to 87.5 from 94.2.
In the currency market, the dollar fell, with the euro buying $1.2477, up from $1.2392 late Thursday. The dollar bought ¥109.26, down from ¥109.60 in the previous session.
-- Reuters contributed to the story
|
