By Nick Godt
Treasurys advanced on Tuesday, pushing short-term yields toward the lowest in five years, after a pair of reports showed wholesale prices dropped the most on record last month and the outlook on housing plunged to the lowest in two decades.
Yields on two-year notes (UST2YR) fell 5 basis points to 1.13%, nearly the lowest since 2003.
Ten-year note yields (UST10Y) fell 13 basis points to 3.53%, the lowest since Oct. 24.
A basis point is one one-hundredth of a percentage point.
Producer prices fell 2.8% in October, the Labor Department said. Excluding food and energy, core producer prices rose 0.4% in October. Analysts polled by MarketWatch had been looking for a decrease of 1.6% in overall prices and for a 0.1% increase in the core rate.
"Inflation is probably going close to zero," said Richard Campagna, chief investment officer of Provident Investment Counsel. "I don't see us making a meaningful improvement in the economy" for some time, meaning price pressures are likely to be well contained.
A declining risk of inflation is good for bonds, especially long-term debt, because it reduces the risk that rising prices will erode the value of fixed-income payments.
A separate report showed U.S. home builders had the worst outlook ever on their industry, according to a survey earlier this month.
Treasurys also had extended gains after a government report showed foreign investors increased holdings of U.S. Treasurys in September.
Investors digested congressional testimony by Treasury Secretary Henry Paulson about how to use the $700 billion Troubled Asset Relief Program, or TARP.
Paulson defended his decision to spend funds to recapitalize financial institutions, saying the best way to turn the housing market around was to "increase access to lower-cost mortgage lending." Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair also testified.
On Monday, Paulson told The Wall Street Journal he wasn't likely to ask for authority to use the second half of the billions available under TARP anytime soon.
(END) Dow Jones Newswires
November 18, 2008 16:52 ET (21:52 GMT)

Publié le 18 novembre 2008 Copyright © 2008 Dowjones