Treasuries held near record lows as one of the Federal Reserve’s preferred measures of inflation showed consumer prices at the lowest level since 2004, boosting demand for government bonds’ fixed income. Yields on 10-year notes held near their lowest levels in six months relative to two-year notes as investors sought longer-term securities amid signs inflation is slowing amid the worsening recession. Government securities rose as the personal consumption expenditure core-price index declined. “The economy is still in rough shape; there’s no sign that we are bottoming out,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “Looking at the fundamentals, I continue to see support for a bullish tone in Treasuries.” The yield on the 10-year note dropped one basis point, or 0.01 percentage point, to 2.17 percent at 10:53 a.m. in New York, according to BGCantor Market Data. The price of the 3.75 percent security due November 2018 rose 2/32, or 63 cents per $1,000 face amount, to 113 30/32. The five-year note yield fell three basis points to 1.50 percent. The core PCE index, a gauge of prices tied to consumer spending behavior, fell to 1.9 percent per year, the lowest since March 2004.

Source