Treasury prices fall on economic reports

Treasury prices fall on economic reports

	Published : Fri, 30 Mar 2007 23:26 By : Agencies Print this Story

NEW YORK (AP) - U.S. Treasury prices ended lower Friday after a slew of strong economic reports left investors overall less upbeat about an ease in interest rates.

At 5 p.m. EDT, the 10-year Treasury note was down 31 cents per $1,000 in face value, or 1/32 point, from its level at 5 p.m. Thursday. Its yield, which moves in the opposite direction, rose to 4.65 percent from 4.64 percent.

The 30-year bond fell 2/32 point. Its yield was unchanged at 4.84 percent.

The 2-year note rose slightly. Its yield fell to 4.58 percent from 4.59 percent.

Yields on 3-month Treasury bills were 5.04 percent as the discount rate rose 0.01 percentage point to 4.92 percent.

Treasury prices started the morning lower after the Chicago Purchasing Management Index showed strength in the manufacturing sector and a government reported a higher-than-expected reading on core inflation.

That left investors with the sentiment that the Federal Reserve 'is not going to move in either direction,' said Richard Gilhooly, senior fixed-income strategist at BNP Paribas in New York.

Friday trading took the 10-year note to its highest yield seen this month at 4.67 percent -- a level last seen in late February.

The Commerce Department reported Friday morning that a price index for personal consumption expenditures -- excluding food and energy -- rose 0.3 percent in February from the previous month. The index increased by 0.2 percent in January.

Compared with a year earlier, the price index climbed 2.4 percent in February -- the highest level since September. The year-over-year climb in January for the core inflation gauge was 2.2 percent.

Personal income increased at a seasonally adjusted rate of 0.6 percent in February, after climbing an unrevised 1.0 percent in January. Economists had been expecting a 0.3 percent rise for February. February personal consumption grew 0.6 percent compared with the month before.

Policy-makers watch the core PCE price index closely for signs of problematic inflation. The Fed's so-called comfort zone is considered to be 1 percent to 2 percent.

The higher inflation report was surely worrisome to investors who had been hoping to see price pressures wane, especially after recent cautious remarks from the Fed over the last few weeks.

Last week, in their March meeting statement, policy-makers continued to point to inflation as a key concern. On Thursday, Fed Chairman Ben Bernanke drove that point home when he said that policy-makers were in no way letting down their vigilance on inflation.

'People are worried about GDP really falling and the consumer pulling back,' said Rick Klingman, head of Treasury trading at ABN Amro. 'But when you see income data like this it tends to make you think that the consumer is going to hold up.'

Friday's report suggests a still-resilient consumer and conditions that argue 'against an imminent collapse of the U.S. economy,' said T.J. Marta, fixed-income strategist at RBC Capital Markets.

The Chicago Purchasing Management Index for March showed an unexpected jump, which caused Treasury prices to head lower. The Chicago PMI -- an important measure of manufacturing activity in the heavily industrialized Chicago region -- rose sharply in March to 61.7, after a 47.9 reading in February.

Also putting Treasurys under pressure was U.S. construction spending, which increased by 0.3 percent at a seasonally adjusted annual rate of $1.171 trillion. Spending fell 0.5 percent in January. The original January spending estimate was a 0.8 percent decline.

Wall Street had expected February construction spending would drop by 0.5 percent. The surprise gain was the largest since 1 percent in March 2006.