MW: Treasurys give back some Bernanke-inspired gains
NEW YORK (MarketWatch) -- Treasury prices edged lower Tuesday, pushing short-term yields up from a 10-month low.
The pullback surrendered some of the strong gains that government debt achieved Monday, after Federal Reserve chief Ben Bernanke highlighted challenges facing the fledgling U.S. economic economy and reassured investors that interest rates would remain low for some time.
Yields on 10-year notes (UST10Y 3.36, +0.03, +0.96%) increased 2 basis points to 3.36%, after having closed on Monday at the lowest seen since Oct. 13.
Yields on 2-year notes (UST2YR 0.77, +0.01, +0.92%) , which had touched the lowest since January on Monday, were little changed at 0.77%.
A basis point is one one-hundredth of a percentage point. Bond prices move inversely to their yields.
"We shattered our ranges yesterday," said bond strategists at RBS Securities. "The panic buying that pushed 2-year yields to these levels in late 2008 doesn't seem to be present now, but that hasn't diminished investor enthusiasm for the debt.
"Of course, the Fed's dovishness is a large part of the answer," they told clients.
Treasurys briefly pared the decline after a Fed report showed the output of the nation's factories, mines and utilities rose 0.1% in October, less than expected in a survey of economists by MarketWatch. Capacity utilization, a gauge of slack in the economy, nudged up to 70.7% last month from 70.5% in September. See more on the Fed's latest report on industrial production.
"Overall, a more modest read on production than expected," said strategists at CRT Capital Group. Still, they noted that "the bond bullish implications are limited."
Treasurys had spiked early in the trading session before settling back into the small decline, playing off a government report on inflation.
U.S. producer prices rose 0.3% last month, less than forecast, while prices excluding food and energy unexpectedly dropped by the most in three years. See more on U.S. wholesale-level inflation for October.
Signals of benign inflation are considered good for bonds because inflation erodes the value of fixed-income payments.
U.S. debt took little direction from a Treasury Department report showing net foreign purchases of long-term securities increased, reaching $40.7 billion in September from $34.2 billion in August.
Later in the session, an index on U.S. home builders' confidence is expected to show slight improvement.
"The best that can be said is that this index has put in a bottom and is at least stabilizing near that bottom," said T.J. Marta, founder and chief strategist at Marta on the Markets, in a note.
