Debt prices up after price cuts draw buyers

By Ellen Freilich

NEW YORK (BestGrowthStock) – Treasuries prices rose on Wednesday after recent price declines lured buyers.

Economic reports on inflation and manufacturing mainly met the market’s expectations.

News on November consumer prices confirmed the Federal Reserve’s view that inflation trends are subdued.

“The CPI was friendly for bonds,” said David Ader, senior government bond strategist at CRT Capital Group in Stamford, Connecticut, referring to the Consumer Price Index.

The Federal Reserve said production rose 0.4 percent in November, slightly exceeding forecasts. But utility output was strong and manufacturing was up 0.3 percent. Figures showed ample capacity remained in production facilities.

The benchmark 10-year note rose 20/32, its yield falling to 3.43 percent from 3.49 percent Tuesday.

“We’re at (price and yield) levels not seen since May and the magnitude of the moves extended the momentum well into oversold levels,” Ader said.

A 0.1 percent rise in the November U.S. consumer price index was even more muted than the prior month’s reading, while a 0.1 percent rise in the CPI, excluding food and energy items, was the first rise after being flat for three straight months.

“The headline reading is below consensus and it’s way below the Fed’s comfort zone,” said John Canally, investment strategist at LPL Financial in Boston.

The New York Federal Reserve Bank said its Empire State manufacturing activity index rose to 10.57 in December from a particularly weak reading of -11.14 in November, offering some evidence of a turnaround.

“Empire State bounced up quite well and we saw a dip in inventories versus a rise in new orders as boding well for restocking,” Ader said.

Analysts said Tuesday’s selloff left prices at levels attractive enough to entice buyers.

Traders said Treasuries got some safe-haven support after Moody’s said it might downgrade Spain’s debt rating. drawing new attention to contagion risks from the eurozone crisis.

The Fed’s continued commitment to buy more U.S. Treasuries over the course of six months, reiterated in Tuesday’s Fed statement, also lent support to bond prices.

The Fed said there would be no change in its $600 billion bond-buying program intended to steer the economy away from deflation and cut unemployment, adding that the overnight federal funds rate would be kept near zero.

Seven-year U.S. Treasury notes rose 17/32 in price, its yield falling to 2.76 percent from 2.85 percent on Tuesday. Five-year notes rose 12/32 in price, their yields falling to 2 percent from 2.09 percent on Tuesday.

Though Treasuries drew buyers, traders said one constraint on how high prices could go was the market’s current view that a more simulative fiscal outlook, combined with monetary accommodation, will favor riskier assets like stocks and commodities over safe-haven assets like U.S. government debt.

The 30-year U.S. Treasury bond rose 11/32, its yield easing to 4.51 percent from 4.53 percent Tuesday.

(Editing by Jeffrey Benkoe)

Debt prices up after price cuts draw buyers