NEW YORK (AFX) - The heightened prospect of a Federal Reserve rate hike at the end of June helped boost long-dated U.S. Treasury prices Tuesday, amid further weakness in stocks.
At 5 p.m., the 10-year Treasury note was up 4/32 from Monday. Its yield was 5.01 percent, down from 5.02 percent a day earlier. Bond yields move inversely to prices.
The 30-year bond rose 14/32. Its yield fell to 5.08 percent from 5.11 percent.
The 2-year note fell 1/32. Its yield rose to 5.00 percent, up from 4.98 percent.
Yields on 3-month Treasury bills rose to 4.86 percent from 4.82 percent, as the discount fell to 4.74 percent from 4.70 percent.
Federal Reserve Chairman Ben Bernanke's tough words regarding inflation risk in a speech late Monday continued to pressure equities Tuesday, as investors increasingly believe the central bank will raise the funds rate to 5.25 percent at the end of June.
At the close of trading Tuesday, July federal funds were pricing in 80 percent odds of a 5.25 percent federal funds rate after the Fed meets June 28-29.
Following a 199 point loss Monday, the Dow Jones Industrial Average was off 64 points at 10,984 late Tuesday, below the 11,000 threshold for the first time in three months.
'People are really getting concerned that the Fed is going to have to keep tightening even as the economy slows,' said Scott Gewirtz, head of Treasurys trading at Lehman Brothers in New York.
The Fed chief said the monetary policy-setting Federal Open Market Committee would be 'vigilant to ensure that the recent pattern of elevated core inflation readings is not sustained.'
Prior to Bernanke's remarks, odds for a rate hike this month were under 50 percent, with investors awaiting next week's release of the May consumer price index for guidance. Traders say only a low monthly core CPI of 0.1 percent can stop the FOMC from raising rates, while early estimates indicate a 0.2 percent reading is likely.
The Fed's emphasis upon curtailing inflation helped boost the purchase of long-dated Treasurys, maturities whose fixed rate of returns are ravaged over time by higher consumer prices.
Tom di Galoma, managing director and head of Treasurys trading for Jefferies & Co. noted, 'very good' investor buying of longer-dated Treasury notes, mainly in the 10-year and 30-year part of the curve.
Meanwhile, other Fed officials were also taking a hard line over inflation.
St. Louis Fed President William Poole told The Wall Street Journal during an interview Monday that if inflation expectations keep rising, slowing growth may not be sufficient to hold down actual inflation.
Poole said the central bank should therefore have an 'upside bias' to interest rates to prevent such an increase in expectations.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.