Bonds slide into 2006
Treasurys sink ahead of next week's data, despite fourth yield curve inversion; dollar climbs.
NEW YORK (CNNMoney.com) - Bond prices slipped Friday in the last trading session of 2005 as investors prepared for potentially strong economic data due out next week even though the yield on the 10-year Treasury fell below that of two-year notes for the fourth time this week.
The dollar finished the year up against the euro and the yen.
The benchmark 10-year note fell 8/32 to 100-27/32, yielding 4.39 percent, up from 4.36 percent late Thursday. The two-year note fell 2/32, yielding 4.40 percent, inverting the yield curve.
The 30-year bond fell 13/32 to 112-14/32 to yield 4.54 percent, up from 4.51 in the previous session. The five-year note fell 4/32, yielding 4.35 percent.
Bond prices and yields move in opposite directions.
The yield on the benchmark fell below that of two-year notes for the first time since December 2000 on Tuesday. The normally upward-sloping yield curve inverted Friday for the fourth time this week.
This meant that for a second year, long-term yields barely budged.
"Just for perspective, the 10-year started the year at 4.27 percent," Andrew Brenner, head of fixed-income at Investec U.S. told Reuters. "We were rangebound most of the year."
An inverted yield curve is a rare event because investors tend to demand higher yields on longer-dated bonds to compensate for the risk of higher inflation later.
Previous inversions have typically signaled a slowing economy or recession, and debate has raged over what an inverted curve means in the current environment of robust growth and relatively subdued inflation. (For more on the yield curve, click here.)
After early gains, next week's flurry of economic data quickly became the focus for investors in Friday's shortened session.
Traders are expected to pay particularly close attention to the Institute for Supply Management's manufacturing report due out Tuesday and Friday's monthly employment figures.
Greater-than-expected numbers could stoke fears that the Federal will continue its interest rate hike campaign past January.
Another rate hike would signal that inflation is still a concern to the central bank, and bond investors fear inflation since it erodes the value of fixed-income investments.
In currency trading, the dollar split against the euro and yen but ends 2005 on a strong note after a three-year bear run between 2001 and 2004. It has risen nearly 15 percent against the yen and euro this year, bolstered by its interest rate advantage.
The euro bought $1.1836, down from $1.1847 late Thursday in New York. The dollar bought ¥117.98, up from ¥117.83 in the previous session.
For more on the yield curve, click here.
Click here for bond charts.