US Treasury bond prices rose on Tuesday after comments on inflation from the president of the Federal Reserve Bank of Minneapolis fuelled a bid for government debt. In his first public speech as Minneapolis Fed president, Narayana Kocherlakota said inflation would remain "relatively tame," underlining expectations that interest rates are likely to remain low for some time. The benchmark 10-year Treasury note rose 9/32 to yield 3.66 percent, versus 3.70 percent on Friday.
Kocherlakota does not have a voting seat this year, but will vote next year. With his comments, Kocherlakota seemed to cast himself as a dovish member of the Federal Open Market Committee. While Treasuries were able to cut their earlier losses on Kocherlakota's comments, many believe the turnaround in prices will be short-lived due to global fiscal concerns and improving US economic figures.
Continued ambiguity surrounding Greece's fiscal crisis underscored sentiment that the global financial turmoil of the last two years is not over, keeping investor interest in safe-haven assets intact. "In the big picture, markets are still focused on Greece; there's an assumption that something will happen in the near future, but we're not sure what," said Tony Crescenzi, market strategist and portfolio manager with Pacific Investment Management Co (PIMCO) in Newport Beach, California.
The 30-year Treasury bond was up 11/32 to yield 4.63 percent, down from 4.66 percent on Friday. Two-year notes were up 2/32, yielding 0.80 percent. European ministers told Greece on Tuesday it may need to take further steps to bring its swollen debt under control and calm financial markets, as wage cuts already announced by Athens sparked another strike.
"If the European Union provides help without Greece taking action too, the markets will see through it," Crescenzi said. A surprisingly strong report on manufacturing in New York state initially caused bond prices to fall, though analysts became more skeptical after scrutinising the details of the report. Investors were also awaiting Thursday's announcement from the US Treasury detailing next week's potentially record-breaking supply of two-, five- and seven-year conventional debt and 30-year inflation-protected securities.
The week's big US economic reports were still a few days away, with producer-level and consumer-level inflation data due on Thursday and Friday, respectively. "We're kind of trading sideways and that will probably continue until later in the week," said David Coard, head of fixed-income sales and trading at the Williams Capital Group in New York.
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