By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices pared gains Tuesday as U.S. stocks mounted an effort to get into positive territory, making U.S. bonds look less appealing as an alternative.
Bonds started pulling back after an earlier report showed U.S. producer prices rose a great deal more than expected in September — up 0.8%.
Yields on 10-year notes 10_YEAR -0.51% , which move inversely to prices, fell 1 basis point to 2.15%, after trading near 2.11% before the inflation report. A basis point represents 1/100 of a percentage point.
Yields on 2-year notes 2_YEAR +2.92% declined 1 basis point to 0.27%.
Thirty-year bond yields 30_YEAR -0.19% were little changed at 3.14%.
The 0.8% jump in wholesale prices for September stemmed in large part from a spike in gasoline prices. Excluding food and energy, prices rose 0.2% on the month, also topping forecasts. Read more on PPI.
Policy makers at the Federal Reserve tend to ignore spikes in energy and food costs when setting monetary policy, because they are more volatile, and concentrate on changes in so-called core inflation.
“The Fed will likely do the same as always in looking at this data and blame the whole thing on a surge in energy costs that will feed through the system over time,” said Andrew Wilkinson, chief economic strategist at Miller Tabak. “The bottom line here is the tame performance of the ex-food and energy series, which continues to show that cost pressures remain relatively muted.”
Bond prices had been higher before the PPI report on renewed worries about Europe’s ability to resolve its sovereign-debt and banking problems in short order after Moody’s Investors Service warned it may have to cut France’s Aaa rating. Read about euro, France’s rating.
“So it’s risk-off once again, and a more sober view to the hype over Europe’s rescue and bailout plans,” said David Ader and Ian Lyngen, bond strategists at CRT Capital Group, in a note. “This is, of course, beneficial to the risk-off world, Treasurys and Bunds,” which are German government bonds.
U.S. bonds rallied strongly on Monday, gaining after German Chancellor Angela Merkel’s spokesman warned against expectations for a quick fix to Europe’s debt problems. Bond prices have fallen for the last few weeks as hopes about a broader solution took shape.
