US Treasury prices rose on Friday after data showed only a slight increase in consumer prices, fanning hopes a low-inflation climate will afford the Federal Reserve time to keep interest rates near zero percent. A safety bid stemming from a sell-off on Wall Street and default concerns over non-US government debt intensified Treasury buying.
Traders' relief in the wake of the solid demand for this week's $84 billion in government debt supply added to the market's upbeat tone, analysts said. The bond-friendly factors provided the biggest boost to long-dated Treasuries. The 30-year bond recorded its biggest weekly yield decline in 3-1/2 months, as investors snapped up the longest government debt maturity.
The US Labour Department said its Consumer Price Index, the government's broadest inflation barometer, rose by 0.1 percent in December, less than expected and less than the 0.4 percent gain in November. The price on the 30-year Treasury bond was up 24/32 at 96-19/32. Its yield, which moves inversely to price, was 4.59 percent, down from 4.63 percent late on Thursday.
On the week, the 30-year yield fell 13 basis points, the largest single-week drop since the nearly 16 basis point decline in the last week of September, Reuters data showed. Benchmark 10-year notes gained 16/32 in price for a 3.68 percent yield, down 6 basis points from late Thursday and down 16 basis points from a week ago.
The tame CPI figures also helped narrow the spread between short- and long-dated yields. The two-to-10-year part of the yield curve flattened to 280 basis points after hitting a record intraday wide of 288 basis points on Monday. Investors and traders reckoned this week's gains in the Treasuries market should continue next week in the absence of premier US data and a rally in the stock market.
The US bond market will be closed on Monday in observance of the Martin Luther King holiday. Major US stock indexes on Friday were down 1 percent on bank worries and a somewhat disappointing survey on consumer sentiment. Barclays Capital's index on US Treasuries gained 0.77 percent during the first two weeks of 2010. This was smaller than the increases on Barclays' corporate bond indexes.
A wild card for Treasuries next week will be developments in the European debt market and perception over the deficit problem facing Greece. Euro zone finance ministers have little patience left for Greece and would be ready to impose sanctions on the nation if needed, euro zone sources said. Deterioration in Greece's fiscal situation could undermine confidence in euro zone government debt and fuel a safety bid for Treasuries, investors and traders said.