Bonds Pare Last Week's Gains - TheStreet

Bonds Pare Last Week's Gains

The long bond remained in a fairly narrow range ahead of Tuesday's release of the November CPI.
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Looking forward to tomorrow's Consumer Price Index, the Treasury market slipped back a bit today, surrendering some of last week's gains in light volume. There were no economic releases to watch for and investors' appetite for risk at this late stage of the year is muted.

The market traded down early, recovered slightly and then drifted lower once it reached the afternoon. Friday, the 30-year Treasury reached its lowest yield in nearly three weeks, leading some strategists to think the market had perhaps taken the rally too far.

"Yields were higher than they should have been seven to eight sessions ago and then lower then they should have been

Friday, so the market is paring some gains," said Charles Reinhard, market strategist at

ABN Amro

.

Only a few knives were doing the paring. Tracker

GovPX

reported volume down 17% when compared with the average Monday this past month. Lately the 30-year Treasury bond was down 16/32 to 98 29/32. The yield rose 4 basis points to 6.21%.

Strategists, for the most part, said the market is concentrating on tomorrow's economic slate, paying most attention to the November CPI. Economists polled by

Reuters

are looking for a 0.2% rise in the overall CPI, as well as a 0.2% increase in the core CPI, which excludes the volatile food and energy sectors.

Currently, the core CPI is rising on a 2.1% year-over-year rate. However, David Orr, chief capital markets economist at

First Union Capital Markets

, is still worried about a potential pickup in consumer inflation. He believes the recent increases in producers' wholesale costs (calculated in the

Producer Price Index

, released Friday) will ultimately feed into consumer inflation. Up till now, producers have been able to offset rising prices with improved productivity, but Orr questions the longevity of that scenario.

"If it goes on for three to six months, it doesn't bode well for corporate profits," Orr said. "Input prices are rising faster than output prices. Companies are figuring out ways not to pass the costs on to the consumer...but productivity gains may not be able to offset everything."

The market is less enthused about tomorrow's important

retail sales

report. Another report that could say consumer demand is strong won't be considered a revelation. Economists are forecasting a 0.5% increase and a 0.4% increase excluding auto sales for November, according to

Reuters

, so "for the market to pay attention, it would take a 1.0% or 0.9% increase, or a 0.1% increase," Orr said.