MW: Treasurys rally as Fed defends easing measures
By Nick Godt, MarketWatch
NEW YORK (MarketWatch) — Treasurys rallied Wednesday, as investors sought the safe haven of U.S. fixed-income assets amid concerns about inflation in China and debt woes in Ireland, while Federal Reserve officials defended U.S. easing measures through billions of dollars in bond purchases.
Yields on benchmark 10-year Treasurys (UST10Y 2.87, -0.09, -2.97%) fell 6 basis points to 2.902%.
Yields on two-year notes (UST2YR 0.50, -0.04, -7.41%) were down 4 basis points to 0.5%. Those on 30-year bonds (UST30Y 4.32, -0.10, -2.15%) were off 8 basis points to 4.341%.
Also lending support to prices for U.S. government debt, Federal Reserve Bank of New York President Bill Dudley defended the Fed’s recent move to buy $600 billion of assets, saying the aim wasn’t to trigger further weakness in the U.S. dollar.
He also indicated that the unwinding of monetary stimulus “could be years away,” according to BMO Capital Markets.
The central bank’s quantitative-easing measures have come under attack recently on concerns it might trigger inflation.
Meanwhile, the U.S. government reported that producer prices climbed 0.4% in October, less than expected. Economists surveyed by MarketWatch had expected the producer price index to rise 0.7%.
And core wholesale prices, which exclude volatile food and energy inputs, fell 0.6% last month. See more on latest U.S. data on inflation at the wholesale level.
“Still, Treasurys have taken a shellacking in recent weeks,” said BMO senior economist Sal Guatieri. “To the extent that the backup in Treasury rates reflects better-than-expected economic data and a diminished risk of recession, then the Fed can rest somewhat easy.”
However, if there is growing concern about U.S. sovereign risk, then Treasurys could come under further pressure, he said.
Along these lines, Treasury prices slumped and benchmark 10-year yields rose to their highest in three months Monday, after a report that a Moody’s Investors Service analyst said extending the Bush-era cuts in U.S. income taxes would be bad for the nation’s sovereign credit rating.
