DATE: Thursday 02/01/2007 at 10:59 AM (Eastern)

Bond prices rose and the dollar fell early Thursday morning after a key inflation reading showed just a slight rise in consumer prices in December. Then at 10 am Eastern, the ISM reported lower than expected sending Bonds back to the unchanged level.

The benchmark 10-year note is unchanged, with the cash yield at 4.82 percent, down from 4.83 percent late Wednesday.

The 30-year bond is up +2/32, to yield 4.92 percent, down from 4.93 percent in the previous session.

On the economic front, the Commerce Department said personal income and spending both rose last month in line with estimates.

The inflation reading in the report - the closely watched core PCE deflator - edged higher just 0.1 percent. The PCE deflator measures consumer prices excluding food and energy.

The report comes just a day after the Federal Reserve kept interest rates steady at 5.25 percent and said inflation pressures are likely to ease over time. The Fed has left rates unchanged at its five past meetings.

Investors reacted to a report on the manufacturing sector. The January ISM manufacturing index slipped back into contraction at 49.3 after revisions had lightened the earlier decline to 49.9 in November. Analysts were expecting a reading of 51.5, indicating expansion. This lower than expected number caused a sell off in the Treasuries, erasing all gains on the day.

Lenders have initially posted price improvements based on this morning's price rally in the Treasuries. Although the market has bounced off its lows, we may still see lenders posting price increases this morning.

Reliance on information, recommendations and opinions stated herein is at the risk and discretion of readers. Copyright © Myers Internet Services, Inc.