Treasury Prices Sink On Positive Economic News

By Salon Staff

Published January 18, 2012 8:18PM (EST)

U.S. Treasury prices drifted lower Wednesday as traders reacted to positive reports about inflation, industrial output and the housing market.

Europe's progress toward containing its debt crisis renewed interest in bonds issued by troubled European nations, further reducing demand for Treasurys.

The government said early Wednesday that businesses paid less for food and energy in December, evidence that inflation remains tame. Low inflation sometimes boosts Treasurys because the dollar's stable buying power maintains the value of investors' fixed returns.

Combined with Wednesday's other economic reports, however, the falling prices suggested that U.S. economic activity is poised to speed up. Traders sold Treasurys and bought investments such as stocks, which tend to gain more when the economy is strong.

In a separate report, the government said factory output increased in December by the most in a year amid strong demand for business equipment and construction materials. And an index of sentiment among homebuilders reached its highest level since June 2007.

Borrowing costs for Italy and Spain decreased on news that the International Monetary Fund will seek more cash to support debt-saddled nations in Europe and elsewhere. Traders also were encouraged by reports that Greece is nearing a crucial deal with private holders of bonds that it sold but can't afford to repay.

As cash flowed into stocks and overseas debt, Treasury prices fell. The price on the 10-year Treasury note dropped 41 cents per $100 invested, pushing its yield up to 1.90 percent as of 3 p.m. Eastern, from 1.86 percent late Tuesday.

Bond yields rise as their prices fall. That's because traders are demanding a slightly higher return in exchange for holding an investment whose potential gains are limited.

The price of the 30-year Treasury bond fell $1.06 per $100 invested, pushing its yield up to 2.95 percent from 2.90 percent late Tuesday.

The yield on the two-year Treasury note was unchanged at 0.23 percent. In the short-term market, the yield on the three-month T-bill edged up to 0.03 percent from 0.02 percent late Tuesday.

Salon Staff

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