By Dow Jones Business News,
January 16, 2014, 04:00:00 PM EDT
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices climbed Thursday after a round of lackluster data, including a report that
showed muted inflation, as market experts began to point to the slow increase in costs as a factor that could keep a
lid on interest rates as the economy improves.
The consumer price index rose 0.3% in December, matching analyst forecasts. Stripping out volatile food and energy
costs produced a core CPI of 0.1% in December, compared with an economist consensus of 0.2%. The rise in prices was led
by higher energy and shelter costs, the Labor Department said Thursday.
However, the full-year pace of inflation slipped to 1.5% in 2013 from 1.7% the previous year, which compares with a
Fed target of 2%.
After the data, the 10-year note (10_YEAR) yield, which falls as prices rise, was down 4.5 basis points on the day at
2.841%. The 30-year bond (30_YEAR) yield fell 3 basis points to 3.774%, and the 5-year note (5_YEAR) yield fell 3 basis
points to 1.642%.
Treasury yields have been inching higher in the past month on improving economic data, paired with the Federal
Reserve's decision to begin winding down its bond-buying program. But inflation has remained a notable exception to the
accelerating economic outlook.
"That's been the general perception of inflation for a while now," said Jason Rogan, managing director of U.S.
Treasury trading at Guggenheim Securities. "It's not off enough where people are talking about deflation, but certainly
not picking up speed."
Given the lack of clarifying data in the next few weeks, he believes the 10-year yield will remain in a trading range
between roughly 2.75% and 2.93%.
Outgoing Fed Chairman Ben Bernanke argued that the Fed has the tools to fight inflation during a conference panel
Thursday, but said: "I would point [critics] to this morning's CPI and show inflation just isn't a risk with this
policy." He added that the Fed is very sensitive to financial market stability.
BlackRock CEO Larry Fink also predicted Thursday that inflation won't rise dramatically, which will help keep rates
from accelerating higher. Despite forecasts of climbing Treasury yields, Fink sees the market as being "more muted than
consensus," he said on CNBC Thursday.
Meanwhile, John Williams, president of the San Francisco Federal Reserve Bank, raised the question in a speech about
whether the central bank's 2% inflation target was adequate to keep its rate of growth from falling towards disinflation
"Does the 2% inflation target adopted by many central banks provide a sufficient cushion to allow monetary policy to
successfully stabilize the economy and inflation in the future?" he asked.
Data also showed Thursday that the number of people applying for unemployment benefits dropped by 2,000 to 326,000 the
lowest level in six weeks. Economists polled by MarketWatch had expected claims to hit 330,000. Continuing claims,
however, rose by 174,000 to 3.03 million.
The Philadelphia Fed's manufacturing index inched up to a 9.4 reading in January from 6.4 in December. Economists had
projected an increase to 8.9.
A gauge of home-builder confidence also edged down in January, after jumping in December. The index hit 56 this month,
down from 57 last month. Nonetheless, a number of 50 tends to signal optimism about sales.
Stocks fell, weighed by a disappointing earnings report from Citigroup Inc. ( C ) and a sales warning from Best Buy
Inc. ( BBY )
More from MarketWatch:
BlackRock's Fink on two rotations in the bond market.
Best Buy bonds skid on holiday sales report.
Big money is betting against Bill Gross.
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