By Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices extended gains on Friday, pushing yields lower, aided by a report on U.S. inflation that shows decreased risk on that front.
Yields on 10-year notes 10_YEAR -1.04% , which move inversely to prices, fell 2 basis points to 1.72%. They touched 1.75% during the Asian session, which may limit the decline by drawing in buyers.
“We’re now neutral with the 1.75% target hit and look to go long as we approach 1.87% support,” said RBS strategist Bill O’Donnell.
“I do not foresee a close over 1.87% for a meaningful period, if at all,” he said. “Some money will begin to flow into the Treasury market before 1.87%,” especially from overseas investors.
Yields on 30-year bonds 30_YEAR -0.83% slipped 2 basis points to 2.88%. A basis point is one one-hundredth of a percentage point. Read: Treasurys slip Thursday after data, auction.
Five-year yields 5_YEAR -1.57% rose 4 basis points to 0.69%.
Treasury prices extended gains slightly after a report showed U.S. consumer prices fell 0.3% in November. Excluding food and energy, prices rose 0.1%, less than expectations. Read: U.S. consumer prices decline in November.
The report supports the Federal Reserve’s decision earlier this week to extend its bond-purchase programs to ease monetary policy in an attempt to boost economic growth. They said they’d be comfortable with inflation rising towards 2.5%.
“The inflationary backdrop remains very benign, providing the Fed with considerable breathing room to keep monetary policy accommodative,” said Millan Mulraine, a strategist at TD Securities.
With favorable year-over-year comparisons and very subdued wage pressures, “we expect core inflation to remain comfortably below the 2.5% y/y threshold that the Fed sees as the trigger point” for ending its asset-buying programs.
Also, as always, bond traders are watching for any trickle of signs from Washington whether lawmakers are closer to compromising on a deal to avert the fiscal cliff: a package of expiring tax breaks and spending measures that threatens to push the economy back into a recession.
“It’s a potent reminder of the U.S.’s struggles with its own sovereign credit issues, particularly as we near the fiscal cliff and the potential for another downgrade,” said bond strategists at CRT Capital Group. “This remains a relevant risk facing Treasurys, although we’re all too cognizant that it’s not entirely obvious that another downgrade is a bearish event.”
The country’s downgrade from S&P last year boosted safe-haven shifts into — you guessed it — Treasury bonds.
Deborah Levine is a MarketWatch reporter, based in San Francisco. Follow her on Twitter @dlevineMW.
