Treasuries Close In The Red After Seeing Early Strength

(RTTNews) - After seeing early strength, treasuries turned lower over the course of the trading day on Friday due in part to comments from Philadelphia Federal Reserve President Charles Plosser.

Bond prices pulled back well off their early highs and ended the day in negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.7 basis points to 2.601 percent after hitting a low of 2.52 percent.

The early strength among treasuries came as traders continued to react to Fed Chairman Ben Bernanke's remarks from Wednesday indicating that the central bank will maintain highly accommodative monetary policy for the foreseeable future.

However, buying interest was partly offset by a report from the Labor Department showing a bigger than expected increase in producer prices in the month of June.

The Labor Department said its producer price index rose by 0.8 percent in June following a 0.5 percent increase in May. Economists had been expecting the price growth to match the increase seen in the previous month.

Excluding food and energy prices, core producer prices edged up by 0.2 percent in June after inching up by 0.1 percent in May. Core prices had been expected to tick up by 0.1 percent.

The report generated mild concerns about the outlook for inflation and its potential impact on the Federal Reserve's plans.

The subsequent downturn by treasuries was partly due to Plosser's comments reaffirming that the Fed could begin scaling back its asset purchase program as early as September.

"I don't want to do it all at once, but I think we should begin to taper very soon and hopefully end it by the end of this year," Plosser said in an interview with Bloomberg news. "That would be a healthy thing for the economy. We can do it gradually."

"I'd like for us to start in September" he added. "We don't want to create another housing boom," and "we have to be careful of the unintended consequences of our policies."

The outlook for the Fed's stimulus program is likely to remain in focus next week, as Bernanke is due to testify before both the House Financial Services Committee and the Senate Banking Committee.

Economic data is also likely to attract attention, with traders likely to keep a close eye on reports on retail sales, industrial production, housing starts, and consumer prices.