WASHINGTON -- November inflation and production reports yesterday, coupled with expectations of another Federal Reserve tightening, pushed Treasury security prices up, with shorter maturities gaining the most.
Falling yields at the short end and essentially steady bond yields at day's end caused the yield curve to lose all the flatness it acquired on Tuesday.
Yields on three-month bills fell nine basis points to 5.85%, while returns on six-month maturities lost 10 basis points to 6.57%. Notes posted small gains. And the long bond, up most of the day, ended down three ticks at 95 Xsx, yielding 7.87%.
The Labor Department reported that the consumer price index rose 0.3% in November and the core index -- minus food and energy prices-- grew 0.2%. Year-over-year, retail inflation stood at 2.7%. Also, the Federal Reserve said industrial production increased 0.5% in November and the capacity use rate rose to 84.7%.
Both reports were close to market expectations, with the much-watched capacity use rate coming in a tenth of a percentage point less than expected.
Analysts said yesterday's market reacted to these reports and what some described as a premature flattening of the yield curve on Tuesday. The spread between two-year and 30-year securities grew to 26 basis points yesterday from a slim 12 basis points on Tuesday.
In general, a flattening yield curve indicates that the market believes higher interest rates will slow growth and ward off higher inflation in the future, analysts said.
Treasury Market Yields Previous Previous Wednesday Week Month3-Month Bill 5.93 5.89 5.526-Month Bill 6.67 6.47 6.031-Year Bill 7.29 6.95 6.562-Year Note 7.68 7.42 7.083-Year Note 7.78 7.54 7.395-Year Note 7.81 7.65 7.687-Year Note 7.81 7.68 7.7810-Year Note 7.80 7.71 7.9030-Year Bond 7.84 7.83 8.04
Source: Cantor, Fitzgerald / Telerate
Stats
Stock Market: The Dow Jones Industrial Average rose 30.95 points yesterday, to close at 3746.29.
Foreign Exchange: In late New York trading yesterday, the dollar was quoted at 100.28 Japanese yen and 1.5685 German marks.
Commodities: The Commodity Research Bureau's index closed up 0.41 point yesterday, at 229.64.
