Bond Report: U.S. Treasury yields stabilize after drop on CPI data


Treasury yields were mixed Wednesday, with the market largely steady after a cooler-than-expected reading of the U.S. August consumer price index triggered a rally Tuesday that saw long-end yields post their largest daily drops in a month.

What are yields doing?
  • The 10-year Treasury note yield

    edged higher at 1.286%, compared with 1.276% at 3 p.m. Eastern on Tuesday. Yields and debt prices move in opposite directions.
  • The 2-year Treasury note yield

    was at 0.209% versus 0.207% late Tuesday.
  • The 30-year Treasury bond yield

    fell to 1.845%, down from 1.85% late Tuesday.
What’s driving the market?

Treasury yields declined Tuesday after the August consumer price index rose at a weaker-than-expected 5.3% pace year-over-year from 5.4% in July. That’s the first slowdown since last October. The core rate, which leaves out volatile food and energy prices, slowed to 4% from a July reading of 4.3%.

ReadAugust U.S. inflation reading eases bond market’s worry about extent of Fed’s next tightening cycle

Traders have more data to sift through Wednesday, though the economic calendar appeared to offer little direction.

Import prices fell in August for the first time in 10 months as inflationary pressures eased: They dropped 0.3% last month, mostly stemming from the lower cost of foreign oil and industrial supplies. Meanwhile, the New York Fed’s Empire State business conditions indexfor September surged 16 points to 34.3, beating the 17.2 estimate of economists surveyed by the Wall Street Journal.

Industrial production rose 0.4% in August, down from a revised 0.8% in the prior month, after shutdowns related to Hurricane Ida held down production, according to the Fed. Industrial capacity in use rose to 76.4% in August from 76.2% in the prior month.

What are analysts saying?

“If anything, following the UST (U.S. Treasury) reaction to U.S. CPI data yesterday, we expect to see some consolidation,” wrote analysts at UniCredit, in a note. “While CPI inflation came in softer than expected, it still remains high (5.3% year-over-year), confirming that substantial progress has been made in achieving the [Fed’s] inflation goal.”

The inflation data doesn’t change anything regarding the timing of the Fed’s tapering decision, “as suggested by the negligible movement in UST real yields,” they wrote. “Investors will now turn to scrutinizing economic data, and most importantly labor market data, which will be crucial in determining the timing of tapering and the performance of UST real yields going forward.”

Market Snapshot: Dow, S&P 500 pivot higher Wednesday as stock market faces early bout of turbulence

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