Treasury bonds spike after more economic doubt

NEW YORK — Treasury bonds rose Tuesday on a report that consumer confidence fell in June more than economists expected, the latest another indication that higher gas and food prices are taking a toll on consumer spending. The market was also awaiting the results of the Federal Reserve's two-day meeting on interest rates.

Prices also got a boost from a successful auction of new 2-year notes.

The Conference Board reported that its U.S. consumer confidence index sank to 50.4, far below forecasts of 56.5 and May's reading of 58.1. The research group also said its reading of consumers' expectations hit an all-time low as the economy continues to struggle.

With consumer spending accounting for two-thirds of the economy, the report raised concerns about economic growth in the coming months. Investors reacted by pulling their money out of stocks and into the relative safety of government bonds.

The benchmark 10-year note rose 20/32 to 98 9/32, and its yield fell to 4.09 percent from 4.17 percent late Monday, according to BGCantor Market Data. Yields move in the opposite direction from prices.

The 30-year long bond rose 32/32 to 95.24. Its yield fell to 4.64 percent from 4.70 percent.

The 2-year note rose 7/32 to 99 19/32 with a yield of 2.84 percent. There is no comparison to the previous session's price because the Treasury Department issued $30 billion of the debt during the afternoon.

Jay Mueller, an economist with Strong Capital Management, said the auction was well-received. That helped drive up the prices of already outstanding government issues.

In late trading, the 2-year yield rose to 2.85 percent, the 10-year yield rose to 4.10 percent, and the 30-year yield rose to 4.65 percent.

The yield on the 3-month bill rose to 1.82 percent from 1.84 percent, while its discount rate was 1.79 percent compared to Monday's 1.86 percent.

Mueller said bond investors were trying to predict what the Fed will do at its meeting, which ends Wednesday. Mueller and other analysts believe that a recent series of sluggish economic reports will force policymakers to keep rates steady; however, the market was anxious to see what the central bank will say in its accompanying economic statement.

"The Fed will stay on hold, but the statement will almost certainly acknowledge the economy is weak and inflation is a problem — and the market will be looking to see which one is the bigger concern," he said. "There's been a fair amount of hawkish rhetoric lately, and the question is if that will get translated into policy."

There was further evidence on Tuesday that the U.S. housing market continues to struggle. The Standard & Poor's Case-Shiller report showed home prices in 20 U.S. metropolitan regions at its fastest pace since 2000.

And more data is scheduled for release in the coming days. Reports are expected for May orders for durable goods, and May sales of new and existing homes.

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