Treasury Prices Surge as Producer Price Data Offer Assurance That Inflation Isn't a Threat
NEW YORK -- Prices of Treasury notes and bonds soared as investors' fears of inflation were deflated, at least for the moment, by a favorable report on wholesale prices.</br></br>The benchmark 30-year Treasury bond surged 1 1/4 points, or $12.50 for a bond with a $1,000 face value, to 103 13/32 during a trading session abbreviated in observance of the Easter holiday. The yield, which moves in the opposite direction from the price, plunged to 6.85%, its lowest level in two weeks, and down from 6.95% on Wednesday. The 10-year note dropped nearly 3/4 point to 102 1/32 to yield 5.97%, down from 6.06%. Most world bond markets will be closed today .</br></br>Treasurys rallied after the government reported that wholesale prices, as measured by the producer price index, rose 0.4% during March, slightly more than had been anticipated. But traders concentrated instead on the so-called core rate, which excludes the volatile food and energy category. Since the core rate rose just 0.1%, well below expectations, it provided a catalyst for the bond market rally.</br></br>The bond market "just needed a couple of reassuring economic numbers to go up, and it got them," said Donald Fine, chief market analyst at Chase Securities Inc.</br></br>Though the economy appears to be growing slowly and few economists are predicting substantially higher inflation this year, bond investors have developed a serious case of inflation jitters over the past month. Bond investors fear a rapidly growing economy because it could lead to higher inflation, which eats away at the returns on their investments.