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U.S. Treasurys Gain for a Fifth Consecutive Day Ahead of FOMC

16:43

By Carolyn Cui

Treasury prices gained on Tuesday, sending yields lower, after a tame reading

of inflation in August gave a degree of comfort to the markets as they brace

for the Federal Open Market Committees decision on the Federal Reserves

stimulus program following its two-day policy-setting meeting Wednesday.

In early trade, the benchmark 10-year Treasury note added 3/32 to yield

2.863%. The 30-year bond rose 6/32 to yield 3.859%. Bond prices move inversely

to yields.

With Tuesdays gains, U.S. government bonds were poised for a fifth

consecutive day of gains, as the Federal Reserve starts its policy-setting

committee meeting, where officials will discuss whether to rein in their

$85-billion-a-month bond-buying program.

Treasurys were recently buoyed by former Treasury secretary Lawrence

Summerss decision to pull out of the contest for the Fed chairmanship and

Janet Yellen, the Feds Vice Chairwoman, considered to be more a supporter of

accommodative monetary policy, emerged as the front-runner to become the White

Houses nominee to lead the central bank.

Were really at an intersection of a lot of major factors in the market,

said Robert Tipp, chief investment strategist at Prudential Fixed Income. The

market is trying to turn a corner here after the significant selloff we had

since May, which had pushed yields to extremely attractive levels. Even with

big uncertainties around how the Fed forecasts are going to evolve today, it

looks like a cresting of yields as we come into in all likelihood of the taper

announcement.

The Labor Department reported that headline consumer prices increased 0.1%

last month from July. The core prices--which exclude food and energy

prices--also rose 0.1%, as expected. Year-over-year, consumer prices were up

1.5%, down from a 2.0% pace in the year through July. But core prices rose 1.8%

over the past 12 months, closer to the Feds target of 2%.

Subdued inflation has been cited as a reason that could potentially delay the

central banks decision to scale back its program, as policy makers were

concerned tame price increases could pose risks to economic growth.

Separately, the Treasury Department reported in its latest Treasury

International Capital data that foreign private investors sharply increased

their Treasury holdings in July, buying $49.8 billion as central banks

continued to shed assets.

As a whole, foreigners purchased a net $33.9 billion of Treasury coupon

securities, a sharp reversal from strong selling over the previous four months.

On a country-by-country basis, Japan was the biggest buyer of Treasurys during

the month, taking $52 billion as China purchased a much smaller $1.5 billion.

In the face of a less accommodative Fed, analysts are looking to gauge the

appetite of foreign investors for Treasurys and other bonds, Mr. Tipp said.

From an international perspective, U.S. yields are more attractive than those

in many developed nations, especially after the recent selloff.

Write to Carolyn Cui at carolyn.cui@wsj.com

(END) Dow Jones Newswires

September 17, 2013 10:43 ET (14:43 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

091713 14:43 -- GMT

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