By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices climbed Thursday after
data showed that inflation remained subdued, and market experts
began to point to the slow increase in costs as one 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 basis points on the day at 2.845%. The
30-year bond (30_YEAR) yield fell 2.5 basis points to 3.780% and
the 5-year note (5_YEAR) yield fell 3.5 basis points to 1.640%.
Treasury yields have been inching higher in the past month on
improving economic data, paired with the Federal Reserve decision
to begin winding down its bond-buying program. But inflation has
remained a notable exception to the accelerating economic
outlook.
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 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, asked in a speech Thursday whether the central bank's
2% inflation target was adequate to keep its rate of growth from
falling towards disinflation or deflation
"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.
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.
Big money is betting against Bill Gross.
How the bond market is challenging the Fed.
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