NEW YORK -- Treasurys ended higher, lifted by market positioning activity and by expectations that investors might shift funds out of wobbly stock markets.
The bond market shrugged off a report showing moderate inflationary pressures at the consumer level for October.
Instead, traders said, much of the day's trade was simply a continuation of the repositioning -- including a move toward longer-dated issues -- that began after the Federal Reserve's latest policy statement Wednesday.
Late in the day, the benchmark 10-year Treasury note was up 10/32 point, or $3.125 per $1,000 face value, at 100 13/32. Its yield fell to 5.660% from 5.711% late Wednesday, as yields move inversely to prices.
Meanwhile, the 30-year Treasury bond's price was up 13/32 at 107 3/32 to yield 5.737%, down from 5.767% late Wednesday.
The market reacted little to a report by the Labor Department that the consumer price index rose 0.2% in October after a 0.5% gain in September. The core CPI, which excludes the volatile food and energy components, also was subdued, rising an expected 0.2% in October after September's 0.3% advance. The October figures were in line with forecasts by Wall Street economists.
Year-over-year, the CPI decelerated in October, rising at a 3.4% rate after September's 3.5% advance. The core measure of the CPI rose 2.5% in annual terms.
"Everyone was expecting this number," and the market was positioned accordingly, said Drew Matus, an economist with Lehman Brothers Global Economics, explaining the lack of market reaction.
Although not as dominant an influence as in recent weeks, stocks played some role in yesterday's dealings, traders said.
A steep slide in the technology-laden Nasdaq Composite Index -- which ended down 133.61 points at 3031.88 -- buoyed Treasury prices, as traders anticipated that some investors would move money from stocks to the relative safety of the government-securities market.
Meanwhile, the Fed's actions Wednesday also continued to influence bond investors, traders said.
The Federal Open Market Committee, the Fed's policy-setting arm, left interest rates unchanged. But in a statement, it warned that "risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future."
Investors interpreted that to mean that the Fed remains vigilant for evidence of inflation and responded by buying long Treasury maturities, which are the most sensitive to inflation prospects, while sell
"There was enough [in the Fed's statement] to make people feel comfortable" about 10-year notes and 30-year bonds, said William Hornbarger, head market strategist with A.G. Edwards & Co. in St. Louis.
Some also believe the Fed is making sufficient progress in containing inflation that before long, it is likely to begin easing policy.
"The Fed statement was positive and supports the notion that next move from the central bank will be lower rates," said David Schroeder, a fixed-income fund manager with California-based American Century.
Traders said the long end of the market also drew support early yesterday from another Treasury Department buyback of outstanding issues.
Treasury paid $1.31 billion to buy back $1 billion in outstanding debt maturing between February 2010 and November 2014. The average yield seen in the operation was 5.903% and the bid-to-cover, a gauge of investor interest, stood at 4.90.
The Treasury is retiring $30 billion in bonds this year by way of its buyback operations.
Many traders expect a quiet day today, as there aren't any scheduled releases of top-tier economic data. As a result, prices should be able to hold to a fairly tight range as the market continues to wait out the outcome of the still-unresolved presidential election, traders said.
American Century's Mr. Schroeder, while sanguine about interest rates, said he sees much of the Treasury market priced a bit on the high side.
Some of the best investment opportunities are in the Treasury's inflation indexed Treasurys, known as TIPS, he said. "Relative to regular Treasurys, [TIPS] yields should fall," which would prove lucrative to holders, Mr. Schroeder said.
Par Par High Wtd Avg Mat Amt Amt Accept Accept Coupon Date Offer Accept Price Price 11.750 02/05 -101 910 n/a n/a 10.000 05/05 -105 640 n/a n/a 12.750 11/05 -102 520 n/a n/a 13.875 05/06 -112 250 n/a n/a 14.000 11/06 -112 600 n/a n/a 10.375 11/07 -121,280 580 125.289 125.267 12.000 08/08 -131,228 340 137.484 137.463 13.250 05/09 -142 7080 148.593 148.593 12.500 08/09 -143 930 n/a n/a 11.750 11/09 -142 400 n/a n/a Amounts in millions, prices in decimals. *Amount outstanding after operation. Calculated using amounts reported on announcement.
Corporate and Junk Bonds
A debt default by Reliance Group Holdings Inc. had no appreciable effect on its outstanding junk bonds, which have traded at distressed levels since the summer, traders said. Its 9% senior subordinated notes of November 2000 traded at 93/4, unchanged from Wednesday.
The insurance concern, which is in talks about a restructuring with bondholders, lenders and regulators, failed to make a $291.7 million principal payment due Wednesday. In a news release, the company said it also didn't make a coupon payment due Wednesday on 9.75% senior subordinated debentures that mature in 2003.
Elsewhere, PSINet Inc. bonds jumped about two points after it said it had hired Goldman Sachs to weigh various options, including a sale of all or part of the company. PSINet's 101/2% notes due 2006 traded at 38, up from 36 Wednesday.
In investment-grade bond trading, yield spreads were mostly unchanged.
Investors were awaiting a $400 million sale of three-year notes by Navistar Financial Corp. Chase Securities Inc. is serving as lead manager for the securities, which are rated Baa3 by Moody's Investors Service and triple-B-minus by Standard & Poor's.