Treasurys slide as wholesale inflation surges

NEW YORK — Treasury prices fell sharply Tuesday following a jump in wholesale inflation numbers in June.

Inflation is a big worry for fixed-income investors because its erodes the value of their returns over time. The increase in wholesale prices surprised the market, which had expected costs wouldn’t increase while the economy remains weak.

The Labor Department said its Producer Price Index jumped 1.8 percent last month in part because of higher energy prices. The increase was double what analysts had been expecting and well beyond the 0.2 percent rise in May.

The drop in Treasury prices, and the resulting rise in yields, follows a sharp fall Monday as investors rushed into the stock market after an influential banking analyst raised her rating on Goldman Sachs, lifting financial shares and the broader market along with it, taking away the safe-having appeal of Treasurys. Goldman wound up posting better-than-expected profits on Tuesday.

The 10-year Treasury note fell 31/32 to 97 4/32, pushing its yield up to 3.47 percent from 3.35 percent late Monday. The yield is still down from an eight-month high of 4.01 percent on June 10.

The 30-year bond skidded 2 12/32 to 97 29/32 and its yield rose to 4.38 percent from 4.24 percent.

The two-year note fell 2/32 to 100 11/32. Its yield rose to 0.95 percent from 0.91 percent.

The yield on the three-month T-bill rose to 0.17 percent from 0.16 percent. Its discount rate stood at 0.18 percent.

Treasury prices fell in the spring on optimism that the economy would recover quickly. But bond prices rebounded since mid-June as worries intensified that the recession that began in December 2007 might not be ending as soon as hoped.

The cost of borrowing between banks rose. The British Bankers’ Association said the rate on three-month loans in dollars — the London Interbank Offered Rate, or Libor — rose less than 0.01 of a percentage point to 0.51 percent.