By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices improved on Monday after a government report showed that U.S. consumer spending rose 0.2% in September and that incomes fell 0.1%.
Yields on 10-year notes (UST10Y 2.57, -0.03, -1.27%) , which move inversely to prices, fell 3 basis points to 2.58%. A basis point is 0.01%.
Yields on 2-year notes (UST2YR 0.34, 0.00, 0.00%) slipped 1 basis point to 0.33%, retouching the all-time low.
The Commerce Department’s report also showed that inflation, excluding food and energy, was flat for consumers.
This was “a very friendly report with a drop in inflation and very tame wage gains with disposable income actually down,” said strategists at CRT Capital Group. “The market is firmer on the back of this, but not by much.”
Still to come are the Institute for Supply Management’s factories report for October and the Federal Reserve’s buyback to roll over cash from maturing mortgage holdings.
Treasury prices fell last week, as analysts and investors adjusted expectations of how the U.Se. central bank will construct a quantitative- easing program, widely projected to be announced after the policy-setting Federal Open Market Committee’s meeting ends Wednesday. Read about bonds, Fed easing.
As this would be the Fed’s second round of bond buying since the financial crisis, it’s been dubbed QE2.
“We go into Wednesday’s FOMC statement with a wide range of expectations for the ultimate size of QE2 — roughly $500 billion to $5 trillion — so it’s tough to say where the disappointment or excitement thresholds lie,” said strategists at RBS Securities.
This week also brings the midterm elections, which is expected to lead to effective gridlock in Washington if Republicans gain one or both houses of Congress, and the U.S. nonfarm-payrolls report for October.
