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Bond Market Update

Bond Market Updates and Reports at SmartMoney.com
May 14, 2008 12:55 PM

By Nick Godt

Treasurys mostly rose on Wednesday, sending yields lower, after data showed core consumer prices, excluding food and energy, rose less than expected in April.

The benchmark 10-year Treasury bond was up 0.02% to 99.22, yielding (TNX) 3.912%. The 2-year note dipped 0.01% to 99.09, yielding 2.486%, while the 30-year bond gained 0.9% to 96.06, yielding (TYX) 4.609%.

U.S. consumer prices increased at a moderate 0.2% in April with decelerating energy prices offsetting rising food prices, the government said. Excluding volatile food and energy prices, the core consumer price index increased 0.1%.

Inflation was just a bit weaker than expected. Economists were expecting both the CPI and the core rate to rise 0.2%.

But the gains remained limited, with the market still wary that global inflation pressures are here to say, analysts at Action Economics said in a note.

"Doubts have spread about the veracity of the April CPI data, which does not a trend make," analysts at Action Economics said. "Some are still waiting for the other shoe to drop on the credit markets," they added.

Meanwhile, the market has raised its bets that the Federal Reserve will start raising rates in late October after a period of holding rates at the current 2% level.

The November fed funds futures contract Wednesday mid-morning priced in about a 56% chance that the central bank will raise its key interest rate by a quarter-point when it meets in late October, to 2.25%, up from 48% odds at the Tuesday settlement and only 16% Monday.

Odds slipped slightly only slightly after the CPI. For the late June meetings, traders are pricing in a 6% chance of another quarter-point cut, to 1.75%.

(END) Dow Jones Newswires

05-14-08 1255ET

Copyright (c) 2008 Dow Jones & Company, Inc.

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