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Bond Report: Treasury yields are mixed as surge in U.S. inflation slows in August

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Treasury yields were on the rise early Tuesday, as investors prepared for the release of the U.S. August consumer price index, the latest read on inflationary pressures in the economy.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.325%

    rose to 1.34%, compared with 1.323% at 3 p.m. Eastern on Monday.
  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.213%

    was at 0.213%, unchanged from Monday afternoon.
  • The 30-year Treasury bond yield
    TMUBMUSD30Y,
    1.898%

    traded at 1.917%, up from 1.905% late Monday.
What’s driving the market?

All eyes are on the August CPI reading due at 8:30 a.m. Eastern. Economists polled by The Wall Street Journal estimate the cost of living, as measured by the consumer-price index, rose 0.4% in August.

Read: Watch Tuesday morning’s CPI reading for signs that the recent inflation surge is abating

The core CPI, which excludes volatile food and energy prices, is expected to show a 0.3% rise, which would tug the year-over-year rise in the core rate down to 4.2% from 4.3%.

Related: One of the best ways to fight inflation is just to follow the trend

Investors will sift through the data in an effort to divine what impact it might have on the Federal Reserve’s decision on when to begin scaling back its program of monthly bond purchases. Expectations the Fed could move at next week’s policy meeting to lay out a timetable to begin the tapering process have faded, with November now seen as more likely.

See: Online traders see little chance of a Fed tapering announcement at next week’s meeting

In other U.S. economic data, the National Federation of Independent Business said its small-business optimism index rose 0.4 points in August to 100.1. Small-business owners said they were a bit more optimistic about the economy in August, the survey found, but complained that record shortages of labor and supplies were cutting into sales and profits, and hindering the recovery from the pandemic.

What are analysts saying?

“U.S. inflation will, of course, determine how today’s mood plays out, but regardless of the outcome… inflation and subsequent slower growth are the markets’ big fears and it’d take a string of soothing numbers to change that. I can’t see it happening,” said Kit Juckes, global macro strategist at Société Générale, in a note.

“Although [there] is much anticipation for the latest inflation readings, we suspect that outside of the initial reaction, the impact on next week’s Fed meeting is minimal,” said Marc Chandler, chief market strategist at Bannockburn Global Forex, in a note. “Tapering is still on track to begin before the end of the year.”

Economic Report: Surge in U.S. consumer prices slows in August, CPI shows. Has inflation peaked?

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