Treasuries price rise as inflation data soothe Fed fears

NEW YORK: US Treasury debt prices were boosted Wednesday by tame U.S. inflation data that soothed worries Federal Reserve policymakers meeting in Washington were likely to soon tilt toward tightening American monetary policy.

Yields on benchmark 10-year Treasury notes dipped to a session low of 2.558 percent shortly after government economists reported U.S. consumer prices fell for the first time in nearly 1-1/2 years in August.

Ten-year notes were last up 6/32 in price and yielding 2.5652 percent.

The Labor Department said its Consumer Price Index dropped 0.2 percent last month as a broad decline in energy prices offset increases in food and shelter costs. It was the first decline since April last year and followed a 0.1 percent gain in July.

Stripping out food and energy prices, the so-called core CPI was flat in August for the first time since October 2010 after nudging up 0.1 percent in July.

"The core was unchanged, and that's the first time the core's been unchanged month over month since October 2010," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut. "That's something people are taking notice of.

"And because of that fact there is very little pressure on the Fed to do anything less dovish this afternoon," Lyngen said. "So that is bullish for the Treasury market."

Prices of 30-year Treasuries also rose, while shorter maturities were mixed in early New York trading. The long bond was up 8/32 and last yielding 3.34 percent.

Bond traders were focused on the Fed meeting, which will end on Wednesday with a news conference by Fed Chair Janet Yellen and a policy statement that may include a shift in the central bank's planned return to rising interest rates.

"The market will be all about the Fed today," Lyngen said.

Treasuries, which were up for a third straight session after a sell-off last week, have been also benefited from investor anxieties about Thursday's independence vote in Scotland that has potential to rattle markets.

But traders on Wednesday, according to Lyngen, were fixated on whether or not the Fed will retain the phrase "considerable time" in it outlook statement. The phrase has become a touchstone in markets for when the Fed might start raising interest rates and dropping it would be taken as a hawkish step.