Bonds Rise as Dismal Housing Overshadows Inflation


Treasury bond prices rose Wednesday as fresh evidence of a dismal US housing market overshadowed data showing inflation pressures rose slightly, bolstering investors' hopes for an interest rate cut.

US short-term rate futures showed the perceived chance the Federal Reserve would cut rates at its next policy meeting on Oct. 30-31 had risen to about 38 percent, from 32 percent.

"What's driving the Treasury market right now is the housing starts plunging to a 14-year low in September," said Andrew Richman, managing director of SunTrust's personal asset management division, based in West Palm Beach, Florida.

The benchmark 10-year note's price rose 6/32 for a yield of 4.63 percent, versus 4.66 percent both before the data and late Tuesday. Bond yields and prices move inversely.

"There is some momentum now and the fear factor is back in the market," Richman said. "The jury is still out how far housing is going to bleed into the rest of the economy, and whether the credit crunch is done yet."

US home construction starts fell 10.2 percent in September to their lowest in more than 14 years.

The Consumer Price Index headline rose at a 0.3 percent rate in September, above Wall Street economists' forecast for a 0.2 percent rise.

The two-year note , which responds closely to expectations for central bank rate moves, traded up 3/32 for a yield of 4.09 percent, compared with 4.14 percent late Tuesday.