Commodities rise sparks jump in long bond's yield MARKETS RTC


NEW YORK -- U.S. long-term Treasury bond yields jumped yesterday, driven by a surge in commodity prices, after setting a record low 6.625 percent overnight.

After rallying as much as 1/2 , the price of the benchmark 30-year bond closed down 6/32. The decline came after the Commodity Research Bureau reported its spot price index had risen 5 points, to the highest since November 1991.

The 30-year bond finished at 105 23/32, or down $1.88 per $1,000 bond, late yesterday. The yield was up 2 basis points, at 6.68 percent.

The record of 6.625 percent, set in London trading, surpassed the record of 6.65 percent set March 8 and matched last Tuesday.

The surge in the CRB index, along with news that consumer spending is picking up, has people thinking once again that the Federal Reserve might need to raise interest rates to stem inflation, said Jack Myers, a trader at Nikko Securities.

Only last week, people speculated the Fed might need to cut rates to support the recovery. That's changing, Mr. Myers said.

Short rates rose more than bond yields yesterday, which is common when expectations shift about the next Fed policy move. The two-year Treasury note closed down 1/8 , at 100 8/32, to yield 3.98 percent, up from 3.91 percent Friday. The yield gap between two-year and 30-year debt is 270 basis points, down 5 and the smallest gap since last Wednesday.

Only Friday, people were speculating that the Fed might cut rates. The Labor Department reported that the economy added just 13,000 jobs last month, down from the average of 235,000 the prior two months.

Now opinion is swinging full circle, said Frederick Sturm, senior economist at Fuji Securities. "A whole bunch of people jumped to a whole bunch of conclusions about Fed policy on Friday," Mr. Sturm said. Now they're "doing some heavy-duty reconsidering."

The commodities rise shouldn't be mistaken for an acceleration of inflation, said Matthew Alexy, market strategist at First Boston. The CRB is being driven by wheat, corn and oats, which are being affected by the flooding Mississippi River.

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