Treasury prices were lower today, especially for the longer-dated securities, as the money market remained depressed due to yet another specter of inflation. But with equities losing much ground as well, the inverse relationship between stocks and bonds prevented Treasuries from sliding even further.

Bellwether stocks have been hit lately by unhealthy corporate results, and with the latest downgrade of a tech heavyweight this morning, the stage had seemed set for money securities to stage a rally, a rally that would surely have been amplified if the

Consumer Price Index

(

definition |

chart |

source

) results had met expectations. Instead, the CPI numbers, like the producer price figures released on Friday, showed a marked rise in January.

Inflation normally dissuades the

Federal Reserve from lowering interest rates, a scenario that is squarely against the current hopes of bond investors. As soon as the story on the CPI was out, the money market buckled under concerns that the central bank would postpone its rate-cutting schedule.

The benchmark 10-year

Treasury note fell 9/32 to 98 30/32, raising its yield 2.2 basis points to 5.129%.

The 30-year

Treasury bond fell 13/32 to 98 12/32, raising its yield 2.8 basis points to 5.487%.

"The Fed is on an easing cycle, so when an important economic number comes out contrary to relevant expectations, it gets more importance than is due," said Holly Liss, senior vice president and market strategist at

Fuji Futures

, adding that if the central bank had been tightening, the rapidly rising CPI would have been regarded as "a confirmation of the Fed's reasoning."

She maintains that January's rise in the number is a one-time circumstance that is not sustainable.

Natural gas, the price of which has been falling recently, accounted for half of the CPI increase; it showed a 17.4% rise last month. Education and medical expenses rose by about 5% in the period. "The prices of tobacco came in extremely strong as well," Liss noted.

She reasons that the market's reaction reflects its overly high hopes that the Fed will move sooner rather than later in lowering interest rates.

"People had been pricing in a very aggressive easing, and that's not going to be the case," she said. She reiterated, though, that overall data suggests the Fed will remain concerned about the weakening economy.

Meanwhile White House economic advisor Lawrence Lindsey praised the efforts of Fed chairman

Alan Greenspan and his team in steering the U.S. economy in the right direction. In a media briefing, he described their role as that of "leaning against the wind," a slightly puzzling choice of words since the central bank has been blowing in the same direction as everyone else so far this year. It just hasn't been doing it as strongly.

Greenspan did surprise most analysts by supporting President Bush's $1.6 trillion tax cut during his address on Capitol Hill three weeks ago. The plan has still to be ratified by Congress.

Asked whether tax breaks could become fodder for inflation, Liss said she was unconcerned. "The two are not intertwined. The move is to prevent overtaxation by the government and letting the people retain more of their earnings," she said.

Robert Parry, the president of the

San Francisco Fed

, added his voice to those of his colleagues by expressing confidence in an economic recovery culminating in 2% - 2.5% growth for the year. Speaking to a group of economists, he did warn, though, that the "road immediately ahead may be rocky given the uncertainty in the economy."

Low consumer confidence and a recession in the manufacturing sector were uppermost in the minds of Fed officials when they cut interest rates twice in January.

At the

Chicago Board of Trade

, the March

Treasury futures contract fell 15/32 to 103 11/32.

Economic Indicators

The

Consumer Price Index

(

definition |

chart |

source

) rose 0.6% for the month, up from 0.2% growth in December and 0.3% more than economists polled by

Reuters

had anticipated. It is the highest jump since last March, when prices also rose 0.6%, the biggest increase since October 1990. Still, most of the spike came from a 17.4% increase in the price of natural gas, so the numbers may look more inflationary than they really are. Still, the core CPI, which excludes food and energy prices, also rose more than expected, by 0.3%; a 0.2% increase had been forecast.

In other economic news, both imports and exports decreased during December, by 0.7% and 0.8% respectively. The

international trade

(

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chart |

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) deficit, which fell to $32.99 billion, has now shrunk for the third consecutive month. Economists had expected the number at a negative $32.18 billion. However, for the year 2000, the deficit stands at a record $369.7 billion.

Real earnings

(

definition |

chart |

source

), which measure weekly wages after they have been adjusted for inflation, were unchanged for January after having declined by 0.3% in the previous month. The 12-month average is down by 0.5% after falling by 0.3% in December.

The

BTM-UBSW Weekly Chain Store Sales Index

(

definition |

chart ) rose by 0.9% for the week ended Feb. 17, moving along at a healthy clip after registering 0.8% growth in the previous week. The yearly moving average also rose to 4.1% from 3.4%.

The

Redbook Retail Average

(

definition |

chart ) for February is 2.4% ahead of the number recorded during this month last year. It is 0.5% below January's and 0.4% behind the targeted decline.

The overall message of sales activity is positive, with most retailers having beaten sales objectives. While some of the sales were of winter clearance items, Valentine's Day-related merchandise lured the majority of the shoppers.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 116.54 yen, up from 115.69. The euro was worth $0.9090, down from $0.9121. For more on currencies, see

TSC's

Currencies column.

Crude oil for March delivery at the

New York Mercantile Exchange

slipped to $28.50 a barrel from $28.81.

The

Bridge Commodity Research Bureau Index

fell to 221.36 from 222.25.

Gold for March delivery at the

Comex

rose to $258.20 an ounce from $256.10.