NEW YORK (MarketWatch) � Long-term Treasury prices edged up Friday as traders try to gauge the impact that rising oil prices may have on the economic recovery and inflation.
Yields on 10-year notes 10_YEAR �, which move inversely to prices, fell 2 basis points to 1.98%. A basis point is one-hundredth of a percentage point.
Click to Play Who wants more cheap ECB money?The European Central Bank's final tranche of cheap bank financing through its long-term refinancing operation will be made available next week. Its first operation in December proved successful, though firms might be in the market for more loans. (Photo: AP.)
Thirty-year yields 30_YEAR �slipped 3 basis points to 3.10%.
Yields on 5-year notes 5_YEAR �declined 1 basis point to 0.89%.
�The market�s focus continues to be on energy, the strong performance of U.S. equities, and of course one eye on Europe,� said Bill O�Donnell, head of Treasury strategy at RBS Securities.
Crude oil rose to a nine-month high over $109 a barrel amid concerns that Iran�s output may decline. See story on crude futures.
If prices rise enough to make gasoline more expensive for consumers, and force a cutback in spending in other areas, it could weigh on already-tentative the U.S. economic growth. Treasurys tend to be more attractive in a slowing growth environment.
However, oil also increases the risk of accelerating inflation, which eats away at the value of fixed-income payments
Indeed, inflation-indexed Treasurys have done well this week, indicated by a widening gap between the yields on regular bonds and Treasury Inflation Protected Securities, known as TIPS. The gap signifies the bond market�s perceived rate of inflation over the life of the debt.
The gap between TIPS maturing in April 2016 and comparable Treasurys is 2.11 percentage points, or 211 basis points, according to a Barclays Capital note late Thursday. That�s jumped more than 18 basis points this week.
Longer-dated TIPS � the January 2022 securities � indicate inflation is expected to be 2.31% over the life of the debt, up 13 basis points this week.
/quotes/zigman/1484258/quotes/nls/tip TIP 121.09, +0.11, +0.09% TIPS ETF extends gains
However, higher gasoline prices may not prove the same drag on consumption as they were last year, analysts at Credit Suisse said.
The U.S. doesn�t import as much oil as domestic production has increased, Americans have been conserving more, and an unusually warm winter has reduced heating costs. The earthquake in Japan nearly a year ago and the federal debt-ceiling debacle last summer also weighed on economic growth.
�A move above $4 gasoline would certainly have an important psychological effect, but it likely will take even more to derail recovery given the ongoing strength in labor income,� analysts led by Carl Lantz, U.S. interest-rate strategist at Credit Suisse, wrote in a note distributed Friday. �Absent some sort of geopolitical shock � real action in the Middle East � oil is unlikely to destabilize the economy.�
The iShares Barclays TIPS Bond exchange-traded fund TIP �is up 0.5% this week.
G-20, ECB, week in reviewThe focus on rising oil prices muted reaction to U.S. data on consumer confidence and new-home sales.
Traders also positioned themselves for the weekend�s Group of 20 meeting, expected to focus on the euro zone�s problems, and on next week�s long-term liquidity operation from the European Central Bank.
Analysts expect the long-term refinancing operation, or LTRO, to be as well-used as the last three-year one in December that�s credited with relieving Europe�s banking system, boosting risky assets including stocks, the euro EURUSD �and peripheral sovereign debt. Read story on euro, LTRO.
Treasury yields remained in a tight range throughout the week even as the government sold $99 billion in short- and intermediate-term notes. Read about auction, corporate debt sales.
Ten-year yields have slipped from 2.01% a week ago.
Thirty-year yields are down from 3.16% and 5-year yields are up from 0.87% last Friday.
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