Treasuries ended the day higher, but not out of any great desire by dealers to buy bonds. Strategists said position squaring by dealers ahead of tomorrow's Producer Price Index was most directly responsible for today's mild uptick, along with a relief that the Bank of England didn't raise interest rates.
But the market was at a standstill for the bulk of the day, even as the equity market violently ran itself ragged. The 30-year Treasury bond traded in a tight, 13-tick range this session, and ended the day barely higher, up 5/32 to 98 24/32. The yield declined 1 basis point to 6.21%.
Were it another month, the market's languor could be attributed to a fear that tomorrow's November PPI report would shock the economic community with a picture of rising inflation that could threaten economic stability. But this is December, and there's very few people taking any risk. The lack of volatility this week proves that.
"We've survived the
," said Mario DeRose, fixed income strategist at
. "Unless we get a major surprise between now and Tuesday's
Consumer Price Index, I don't think there's anything like an economic number that's going to impact things too much."
The overall PPI is expected to increase 0.2% in November, according to economists polled by
. The core PPI, which excludes food and energy prices, is forecast to rise 0.1%. The PPI, the market's best measure of wholesale inflation, will be affected by the sharp rise in energy prices that took place in November.
The rise in crude oil costs started in mid-November. Anthony Karydakis, senior financial economist at
Banc One Capital Markets
, said the overall PPI increase will depend on when the
calculated the figure -- in the early or late part of that increase. Karydakis is looking for a 0.3% increase.
However, the core PPI is more important, as it excludes those volatile figures. It's not expected to surprise like October's 0.3% increase, which was largely the result of a greater-than-expected rise in prescription drugs. "Usually something like that hits once or twice a year, but it's not going to be back to back," Karydakis said.
Bank of England
left its repo rate unchanged at 5.5%. The decision was expected, but after seeing the
European Central Bank
raise rates in November, it's a relief for the market when a key central bank leaves rates unchanged. (The relief was more palpable in the British Gilt market. The yield on 10-year Gilts fell to 5.195% from 5.26%, and that, in turn, helped lift Treasuries.)
sold $3 billion in 10-year notes this morning, and the sale of a large bond deal often gives the Treasury market a lift as hedges against the risk are unwound. The 10-year notes were a reopening of a previously sold issue, increasing the overall size of the issue to $9 billion.
Freddie Mac and
have aggressively promoted issues of this type to investors seeking liquidity as Treasury supply shrinks.
Today's only monthly economic release,
import and export prices, was a negative for the bond market.
Import prices rose 0.5% in November, increasing the year-on-year gain to 5.5%. This is unfavorable compared with the 6.5% year-over-year decline that was being witnessed at this time last year. Excluding oil prices, import prices were up 0.3%, the fourth increase in a row and the largest since September 1996's 0.4% gain. Export prices were up 0.2% in October and are rising on a 0.3% year-over-year rate.