Treasuries were little changed on the day, even though the government reported a surprisingly large rise in consumer prices in June and despite a sharp rise in oil prices. However, the fact that the June price gains were largely confined to oil prices, with other prices rising little, muted the report's impact.
Alan Greenspan slated to present his semiannual Congressional
testimony on the economy and monetary policy on Thursday, bond market mavens expect action to remain subdued through tomorrow. Unless, that is, either of the Treasury Department's announcements scheduled for tomorrow -- on the details of Thursday's buyback operation and next week's two-year note auction -- are surprising in any respect.
The benchmark 10-year Treasury note ended up 1/32 at 102 17/32, its yield shedding a fraction of a basis point to 6.146%. Shorter-maturity issues outperformed, shedding 2 to 4 basis points of yield.
The 30-year Treasury bond gained 2/32 to 104 23/32, shaving its yield a fraction of a basis point to 5.910%. And at the
Chicago Board of Trade
, the September
Treasury futures contract gained 1/32 to 96 30/32.
Treasuries barely reacted to the news that the
Consumer Price Index
) rose 0.6% in June, vs. an average forecast by economists polled by
that it would gain just 0.4%. The annual growth rate of the CPI spiked to 3.7%, matching its April pace, which was the fastest since August 1991, from 3.1%.
Bond traders could shake it off because energy prices were largely to blame. As oil powered higher in June, the CPI energy index rose 5.6%, its largest gain in over a year. The core CPI, which excludes energy and food prices, rose 0.2%, in line with the average forecast. Its annual growth rate held steady at 2.4%. "Because of that it's not very threatening,"
Credit Suisse First Boston
senior market economist Mike Cloherty said. "Everyone's been watching oil prices, and oil prices are a bit lower this month."
While oil gained today on the news that
had shelved a plan to pump an additional half-million barrels a day, benchmark prices are still below their June highs.
In addition, Cloherty said, it seems that the positive aspect of rising oil prices (from the bond market's warped perspective) -- they curb consumer spending by leaving people with less money to spend on things other than oil -- continues to trump the negative aspect -- they can inflate the price of everything else. "Firms haven't had pricing power, and they have had high profits, so they have been able to absorb higher energy prices," he said. "It actually has been positive for fixed income because it's contributing to a bit of consumer slowdown."
But, Cloherty also noted that while the core CPI annual rate held steady at 2.4%, it accelerated at a slower pace from February 1999 to February 2000. "The Fed's not going to feel completely comfortable with that, so we're going to have to closely watch what Greenspan says," he said.
In any event, the CPI did little to alter expectations about the outcome of the next
Fed meeting on interest rates. Market participants are divided on that score: about half expect the
Federal Open Market Committee to leave the
fed funds rate unchanged on Aug. 22, and about half expect a hike in the rate to 6.75% from 6.5%.
Ahead of Greenspan's Thursday testimony, the Treasury market is preoccupied with issues of supply. The Treasury Department is expected to announce tomorrow that it will try to purchase $2 billion of long-maturity issues in its next buyback operation, on Thursday, and that it will offer $10 billion of new two-year notes in next Wednesday's monthly auction. "Any surprises there -- less in the two-year note, more in the buyback -- will cause a flurry of excitement," said Roseanne Briggen, Treasury market analyst at
. "But I don't see the bigger range breaking ahead of Greenspan."
In other economic news,
) rose 0.1% in June, as the 0.6% rise in the CPI offset the 0.7% increase in average weekly earnings reported by the June
And the two weekly retail sales reports were no great shakes. The
BTM Weekly U.S. Retail Chain Store Sales Index
chart) fell 0.6%, its largest drop in 15 weeks. And the
Redbook Retail Average
chart) found June sales running 1.2% behind May after two weeks, compared to 1.4% after just one week.
Currency and Commodities
The dollar rose against the yen and the euro. It lately was worth 108.24 yen, up from 108.06. The euro was worth $0.9259, down from $0.9364. For more on currencies, see
Crude oil for August delivery at the
New York Mercantile Exchange
rose to $31.94 a barrel from $30.83.
Bridge Commodity Research Bureau Index
rose to 225.34 from 222.10.
Gold for August delivery at the
fell to $283.10 an ounce from $284.20.