By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices fell for a fourth day, pushing yields up, after a pair of Federal Reserve officials focused on the risk that high energy prices, if sustained, will trigger inflation or slow economic growth.
Yields on 10-year notes (UST10Y 3.34, +0.02, +0.48%) , which move inversely to prices, rose 2 basis points to 3.35% in early trading Tuesday.
Yields on 2-year notes (UST2YR 0.65, +0.02, +2.51%) added 3 basis points to 0.66%, the highest in more than a week.
A basis point is one one-hundredth of a percentage point.
Analysts noted light volume overnight, around 62% of the average, according to RBS Securities.
“The Treasury market appears to have hit an impasse,” RBS strategist Bill O’Donnell wrote in a note. “If one reads the headlines out of the Japan, the Middle East and in the European peripheral debt markets today one might conclude the following: ‘better, but still not well.’ ”
On the other hand, a fair amount of U.S. economic data has come in positive, though bond traders are already positioned for Treasury prices to fall further, he said.
“Ten-year yields are now hovering in a relatively tight range,” he said, pegging it at 3.25% on the low side and around 3.40% on the upper end.
Still to come Tuesday are data on U.S. home prices, a regional manufacturing report and the Fed’s latest buyback of debt.
Richard Fisher, president of the Federal Reserve Bank of Dallas, repeated that he opposes any extension of the U.S. central bank’s asset purchase program known after June, saying inflationary pressures are building “worldwide.” His remarks came during in a speech in Frankfurt.
Separately, Sandra Pianalto, head of the Cleveland Fed, said rising energy prices present a key risk for the outlook for the U.S. economy and gross domestic product.
“If the spike in oil prices is sustained, it will potentially slow the pace of GDP growth,” she said in Ohio, according to Dow Jones Newswires. “Even if the growth consequences turn out to be relatively small, a sustained increase in the price of oil could cause some people to worry about higher inflation.”
The major economic report that came out Tuesday overseas also highlighted rising inflation: British consumer prices in February rose a more-than-expected 4.4% from a year ago, increasing the prospects that the Bank of England will raise interest rates.
On Monday, yields rose as investors were more calmed that the situation with Japan’s crippled nuclear reactors was stabilizing and that American and European air strikes over Libya appear to have halted military action by Moammar Gadhafi. Read about bonds on Monday.
