mw: Treasurys edge down after consumer inflation, housing data
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices remained in negative territory, nudging yields higher, after a government report showed consumer prices rose more than predicted last month, signaling inflation isn't dead and spooking fixed-income investors.
The slight decline is also a giveback after a two-day rally that sent 2-year yields to the lowest since January.
Yields on 10-year notes (UST10Y 3.32, -0.01, -0.21%) rose 1 basis point, or 0.01%, to 3.35%.
Two-year note yields (UST2YR 0.75, +0.00, +0.53%) were little changed at 0.77%. Yields move inversely to prices.
Losses were limited as a second report showed the pace of housing starts was much slower than forecast, suggesting continued risks that the weak real estate market will hinder economic growth. See more on housing starts.
"This will certainly raise the prospects of the infamous double-dip," said strategists at CRT Capital Group.
The Labor Department's consumer price index rose a seasonally adjusted 0.3% in October. The consumer price index has fallen 0.2% in the past year, indicating deflation has lingered. See story on CPI data.
Treasurys have gained in the last two days after weaker-than expected economic data and comments from Federal Reserve Chairman Ben Bernanke solidifying expectations that interest rates will remain very low for a long time.
"The data does indeed seem to be coming out consistently on the weak side," CRT strategists wrote in an email. "And the Fed, too, sounds very concerned about underlying themes that, while not new, have a fresher sound to them in the last few days."
Also, bond traders want to begin preparing for next week's Treasury auctions of 2-year, 5-year (UST5YR 2.16, -0.02, -0.78%) and 7-year notes. They tend to do so by selling existing holdings in order to have cash available to buy the newest, most liquid securities. That also weighs on prices, giving them a better deal at the auction.
"It looks like the market it trying to make room for these issues in next week's auctions," said strategists at RBS Securities. "I'll look for that trend to continue."
