Bonds Meet CPI Report With a Shrug

Bonds' dreary pattern continues following in-line economic release.
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Bonds have fallen into a dreary pattern in the past month: worry about forthcoming economic data until it's released, and then start worrying about the next release. So it was with this morning's release of the

Consumer Price Index

for September, which was in line with forecasts.

The CPI rose 0.4%, and the core CPI, which excludes food and energy prices, was up 0.3%. Both figures would have been 0.1% lesser had it not been for a 6.5% increase in tobacco prices. The Treasury market put together a brief rally before falling back, and then resumed a slow, steady rally. The 30-year bond was lately 15/32 higher to 97 26/32. The yield declined 4 basis points to 6.28%.

But it's a cautious rally. When you've got

Fed

Chairman

Alan Greenspan

speaking later today and tomorrow's

international trade

looming, an in-line CPI report isn't going to soothe anybody's soul.

"The market's got a lot on its radar screen still," said Ken Logan, managing analyst at

Thomson Global Markets

. "Today you have Greenspan; who knows what he's going to say. But we could get a relief rally off what he has to say. It could prove to be like CPI -- somewhat of a nonevent."

The CPI, the market's most-watched indicator of consumer inflation, showed its largest gain in both the overall and core since April's 0.7% and 0.4% increases. It wasn't unexpected: tobacco prices jumped this month due to tax increases on cigarettes. Transportation costs rose 0.6% in September, and apparel prices rose 1.2%, after four months of decline. Energy prices rose 1.7%.

The core CPI, on a year-over-year basis, is rising at just a 2% rate, while the overall CPI is rising at a 2.6% rate, its greatest rate of increase since March 1997, and 0.9% higher than last September's 1.5% rate. "The inflation environment has clearly deteriorated," said Ken Mayland, chief economist at

Keycorp

, in a comment. "These price increases, even if narrowly felt, still must be borne by consumers."

It's hard to say whether the market will get a clue about what Greenspan thinks when he addresses an Atlanta Fed conference in Georgia today. The stated topic is: "Do efficient financial markets cause financial crises?" Having already smacked around the equity market last week, the market is certainly on guard.

This morning's

housing starts

release was a mild positive for the bond market. Housing starts fell in September to a 1.618 million seasonally adjusted annual rate, down from August's revised 1.672 million pace. Building permits, a good predictor of future activity, declined 7.3% to 1.501 million from August's 1.619 million pace.