Long Faces: Longer-Dated Treasurys Fall on CPI Data --- Prices Recover After a Drop in Housing Starts; 10-Year Note's Yield at 3.368%
NEW YORK -- Prices of longer-dated Treasurys declined after a government report showed U.S. consumer prices rose more than economists' forecasts last month.</br></br>Short-dated Treasurys recovered from early losses as housing starts unexpectedly dropped last month while a Federal Reserve official said the central bank could keep its key interest rate near zero until 2012. The two-year note, whose yield is closely tied to changes in official interest-rate outlook, was the outperformer. The yield touched as low as 0.734%, the weakest level since late January.</br></br>Federal Reserve Bank of St. Louis President James Bullard said if the Fed sticks to the pattern set after the last two recessions, interest rates will remain unchanged until 2012. Mr. Bullard cautioned that this pattern isn't set in stone, because central bank officials are mindful of the possible mistakes of keeping interest rates too low for too long, as many believe was the case in the middle years of this decade. Mr. Bullard will vote on monetary policy in 2010.</br></br>The benchmark 10-year note was down 12/32 point, or $3.750 per $1,000 face value, at 100 2/32. Its yield rose to 3.368% from 3.323% Tuesday, as yields move inversely to prices. The 30-year bond was down 27/32 point to yield 4.299%.</br></br>While inflation pressure near term remained subdued, the bigger-than-expected increase in the consumer-price-index data raised angst for many investors worried about the outlook for long-term price pressure. Mr. Bullard said the economy faces a "substantial" inflation risk, but that won't occur for another "two, three, or four years."