US Treasury debt prices rose on Tuesday as more news about falling home prices and slumping consumer confidence offset a report showing sharply higher producer price inflation. Investors seem more concerned about ongoing problems in credit markets and the consequent risks to US economic growth, analysts said.
Benchmark 10-year US Treasury notes rose 10/32, while yield fell to of 3.87 percent, down four basis points on the day. Two-year US Treasury notes added 5/32 and their yield fell to 2.04 percent.
Consumer confidence in February plunged to a five-year low and expectations about the future were at their grimmest since the early 1990s, according to the Conference Board. "Completing a triumvirate of ugly US data today, the consumer confidence numbers were significantly weaker than expected," said Alan Ruskin, chief international strategist at RBS in Greenwich, Connecticut.
Earlier the US Labour Department reported producer prices jumped 1.0 percent in January, on rising energy costs, and was up 7.4 percent for the year, the biggest 12 month gain in more than 26 years.
"This number is unlikely to change the outlook for monetary policy given that the Fed has signalled that it will remain focused on growth risks and not inflation," said David Powell, a senior strategist at IDEAglobal. Fresh data on the housing market provided more evidence of why the Federal Reserve might be more concerned about economic growth than inflation.
Prices of existing US homes in major metropolitan areas slumped 8.9 percent in the fourth quarter of 2007 compared to a year earlier, the largest decline in the 20-year history of the S&P/Case Shiller national home price index.
In the background also are ongoing concerns about the health of the banking sector amid the worst credit crunch in at least a decade. Bank earnings plunged 83.5 percent in the fourth quarter to a 16-year low of $5.8 billion, from $35.2 billion a year earlier, the Federal Deposit Insurance Corp said.
Federal Reserve vice chairman, Donald Kohn, in a speech on Tuesday, reinforced the market's conviction that slower growth would trump inflation in the central bank's near-term decision making.
"In my view, the adverse dynamics of the financial markets and the economy have presented the greater threat to economic welfare in the United States," he said. Federal Reserve chairman Bernanke is due to testify to the US Congress on monetary policy on Wednesday.