A Fed Head's Comments Help Lift Prices

But the larger focus is on whether Greenspan will take a different tone next week.
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Treasury prices were a bit higher this morning in the wake of a slightly friendlier-than-expected economic report and supportive comments by a

Fed

official.

At the same time, traders don't want to place any huge bets in the days leading up to Fed Chairman

Alan Greenspan's

next major monetary policy speech. Big Al's semiannual

Humphrey-Hawkins

congressional testimony is slated for Thursday at 10 a.m. EDT.

The benchmark 30-year Treasury bond, which traded up as much as 18/32 earlier, was lately up 11/32 at 90 1/32, trimming its yield 3 basis points to 5.89%. Shorter-maturity notes were outperforming the bond somewhat, reversing their underperformance of the last few sessions. The two-year note, for example, was lately up 2/32, trimming its yield 6 basis points to 5.47%.

On the economic front, June

industrial production

rose 0.2%, in line with the average forecast reported by

Reuters

. And while the year-on-year rate rose to its highest level in a year, 2.7%, the report's other component, the

capacity utilization

rate, edged lower, from 80.4% to 80.3%, against expectations. The capacity utilization rate measures slack in the industrial economy, which helps control inflation.

On the Fed front,

Richmond Fed

President

Alfred Broaddus

is quoted in a story in today's

Washington Post

as saying he's "enormously comforted" by the June

Consumer Price Index

released yesterday, and by the May CPI. "I was worried by the number in April," Broaddus is quoted as saying. "I knew it might be an anomaly, but now it's clear that it was."

In April, the CPI jumped 0.7% overall and 0.4% at its core, which excludes volatile food and energy prices. The overall increase was the largest since October 1990, and it triggered a major selloff in the bond market. But it was followed by two consecutive unchanged readings in May and June, relieving fears that inflation is back.

Broaddus is not currently a voting member of the Fed's monetary policy committee, the

Federal Open Market Committee

, but he is among the most hawkish Fed officials (some consider him the single most hawkish), so his friendly comments carry extra weight. The fact that the

Washington Post's

high-profile Fed reporter,

John Berry

, wrote the story didn't hurt either.

The Broaddus comments were "meaningful," but the larger focus is on the possibility that Greenspan will take a different tone next week,

Prudential Securities

government bond trader Scott Graham said. Since the Fed hiked the key short-term interest rate to 5% from 4.75% on June 30, he noted, "both the stock market and the bond market have rallied, which is counterproductive to what he wanted to accomplish."