Bond market calms down as selling relents
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The government’s report Wednesday on October consumer prices showed inflation still corralled, and that has had a calming influence on the bond market after the sell-off of the last week.
But Treasury bond yields have edged up from their lows of the day since news hit that key Republicans are again bashing the Federal Reserve over its “quantitative easing” plans.
The 10-year T-note yield was at 2.87% at about noon PST, up from 2.84% on Tuesday though still below the three-month high of 2.91% on Monday.
The 30-year T-bond yield (charted below) was at 4.29%, up from 4.26% on Tuesday but down from 4.41% on Monday.
Yields had dipped early Wednesday after the government said the consumer price index rose 0.2% in October, below the 0.3% rise that economists generally had expected. The year-over-year increase in the CPI was 1.2%.
The Fed has cited low inflation as one justification for its plan to buy $600 billion in Treasury bonds over the next eight months, an attempt to keep long-term interest rates depressed and pump money into the financial system.
But critics, including leading Republicans, say the Fed’s bond-buying plan is unnecessary meddling in the economy and raises the risk of an eventual surge in inflation.
On Wednesday, the Fed got a letter from four GOP leaders expressing “deep concerns” over the program, Bloomberg News reported. The letter was signed by House Republican leader John Boehner of Ohio, House Republican Whip Eric Cantor of Virginia, Senate Republican leader Mitch McConnell of Kentucky and Senate Republican Whip Jon Kyl of Arizona.
On Monday, a group of economists and well-known Wall Street figures called for the Fed to halt its bond purchases.
The opposition to the Fed’s purchases has worried the bond market for obvious reasons: If the Fed were to bow out (which for now still seems highly unlikely), bond yields could jump because a major expected source of demand for the next eight months no longer would be there.
Elsewhere in the market Wednesday, many popular bond exchange-traded funds and closed-end funds were trading higher after slumping over the last week.
The SPDR Barclays Capital High Yield fund, which owns corporate junk bonds, was up 18 cents to $39.99, the first gain after eight straight declines.
The BlackRock MuniYield California fund was up 23 cents to $13.52. The fund’s share price had plunged 12.8% from Nov. 1 through Monday.
-- Tom Petruno