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Treasury Prices Fall after PPI, Bernanke News

MARKETSCOPE : Treasurys continued falling Tuesday after news of the February Producer Price Index.

The 10 year notes slid to 98-12/32 for yield of 4.713% from 98-21/32 for yield of 4.669% earlier Tuesday. The 30-year bonds dropped to 96-09/32 for yield of 4.739% from 96-23/32 for yield of 4.704%.

News hit that the February Producer Price Index dropped 1.4% in February, its largest decrease in nearly 3 years, after rising 0.3% in January. The core rate rose 0.3% after rising 0.3% in January. Year on year, the headline PPI growth pace slowed to 3.7% from 5.7% in January, while the core rate accelerated to a 1.7% pace from 1.5% in January.

"Despite the drop in the headline PPI, the core inflation readings in this report suggest upside risks to inflation," says John Ryding of Bear Stearns, New York. "With core consumer inflation being held down by slowing goods prices, a pickup in core goods inflation would be of concern to the Fed." Bear Stearns continues expecting the Fed to raise rates three more times to 5.25% before it ends its tightening cycle.

Federal Reserve Chairman Ben Bernanke said recently that "there is work to do" on raising rates. He also said the Federal Open Market Committee would keep short-term rates lower than normal, if a glut of world savings is keeping long term rates down.

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