April 29, 2013 / 2:26 PM / in 5 years

TREASURIES-Yields slip as quiet inflation keeps path open for Fed

* Low inflation leaves door open for more Fed purchases
    * U.S. core PCE price index flat in March; overall index
-0.1 percent
    * U.S. March year-over-year PCE price index +1.0 percent
    * U.S. March year-over-year core PCE price index +1.1

    By Ellen Freilich
    NEW YORK, April 29 (Reuters) - Benchmark U.S. Treasury
yields eased on Monday after subdued price data for March
pointed to a long tenure for monetary accommodation.
    The government said inflation as reflected in the personal
consumption expenditure price index rose just 1 percent over the
12 months through March, the smallest gain since October 2009
and a slowdown from the 1.3 percent logged in the period through
    Core prices were up 1.1 percent year-over-year, well below
the Federal Reserve's 2 percent inflation target.
    The benchmark 10-year Treasury note, unchanged
before the data was reported, was up 2/32 afterward, its yield
easing to 1.66 percent from 1.67 percent before the report.
    "Investors are adjusting to what appears to be a push to
lower yields," said Kevin Giddis, senior managing director and
head of fixed income capital markets at Raymond James.
    The combination of bumping-along-the-bottom inflation and
slower-than-expected GDP growth in the first quarter - and very
subdued GDP growth in the quarter prior to that - gives the U.S.
central bank room to keep monetary policy accommodative.
    "Once again, (Fed Chairman Ben) Bernanke looks right," said
Mike Materasso, senior vice president and co-chair of the
Franklin Templeton fixed income policy committee in New York. "A
couple of months ago some people were saying, 'Come on,
everything looks better.' But Bernanke's concern and
cautiousness was well-founded."
    Members of the Fed's policy-making Federal Open Market
Committee meet this week to assess the health of the economy.
They are widely expected to keep purchasing bonds at a pace of
$85 billion a month.
    "The Fed may be singing a different tune than the last
meeting, and those who were wanting the Fed to stop buying have
become very quiet," said Kevin Giddis, senior managing director
and head of fixed income capital markets at Raymond James. "In
fact, the silence is deafening."
    The U.S. personal consumption expenditure price index
slipped 0.1 percent in March. The core PCE price index was flat,
even more subdued than the 0.1 percent rise economists
    The subdued price trend was born out in year-over-year data
as well. As of March, the year-over-year PCE price index was up
just 1.0 percent, less than the 1.3 percent year-over-year rise
as of February. The core PCE price index was up just 1.1 percent
year-over-year through March, even less than the subdued 1.3
percent reading that stood through February. 
    "That isn't deflation or disinflation but it (doesn't give
the Fed any reason) to call an early halt to their quantitative
easing monthly purchases," said Chris Rupkey, managing director
and chief financial economist at Bank of Tokyo-Mitsubishi UFJ.
    The National Association of Realtors' report that U.S.
pending home sales rose 1.5 percent in March evoked no
discernible reaction.
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