Fresh evidence of a robust economy jolted the Treasury market Friday, sending bond prices lower and yields soaring to nearly seven-month highs.
The news of stronger factory production and consumer confidence added to already pervasive concerns that recent strength in the economy would deter the Federal Reserve from cutting interest rates anytime soon.The price of the Treasury's main 30-year bond dropped 17-32 point, or $5.31 per $1,000 in face value. Its yield, which moves in the opposite direction, rose to 6.73 percent, its highest close since hitting 6.81 percent last Aug. 24.
Bond prices dropped immediately after the Federal Reserve reported that output at U.S. factories, mines and utilities shot up 1.2 percent, the steepest gain since October 1987 and the third advance in the past four months.
Some economists said the gain in industrial production was exaggerated, since it was based in part on what they saw as faulty assumptions in the Labor Department's monthly employment report.
Still, the employment report and the industrial production data strengthened analysts' beliefs that Fed policymakers will not try to energize the economy with more interest-rate cuts when they meet March 26.
A separate report on consumer confidence from the University of Michigan added to that view. The university said its March consumer sentiment index rose to 95.7 from 88.5 in February, according to market players who saw the report, which is not publicly available.
In its employment report last Friday, the government said the economy created 705,000 jobs in February, the largest increase since 1983. Since lower interest rates help enhance the value of fixed-rate securities, the dashed hopes for a rate cut sent the bond market into its biggest tailspin in nearly two decades.
"You can assume the Fed isn't going to ease," said Eric Herndon, a bond trader with Griffin, Kubik, Stephens & Thompson Inc. in Chicago. "It's not in the picture at all."
The Labor Department's monthly report on consumer inflation came in as expected and had little impact on the market. The government said consumer prices edged up just 0.2 percent.
Elsewhere in the market, prices of short-term Treasury securities ranged from 9-32 point to 3/8 point lower and intermediate maturities ranged from 1/2 point to 9-16 point lower, reported Dow Jones Telerate Inc., a financial information service.
Yields on three-month Treasury bills rose to 5.13 percent as the discount rose 0.04 percentage point to 5.01 percent.