US Treasury yields climb further following inflation data
ETMarkets.com
Synopsis
U.S. Treasury yields ticked up on Wednesday following Tuesday's higher-than-expected consumer price inflation for February, raising concerns that the Federal Reserve may hold off on rate cuts beyond investor expectations.
By Reuters
Last Updated:
U.S. Treasury yields ticked up on Wednesday following Tuesday's higher-than-expected consumer price inflation for February, raising concerns that the Federal Reserve may hold off on rate cuts beyond investor expectations.
This follows Tuesday's consumer price index (CPI), which rose 0.4% last month driven largely by higher costs for gasoline and shelter. So-called core prices - excluding food and energy prices - also gained 0.4%. Headline prices rose 3.2% on an annual basis, while core prices gained 3.8%.
Traders in Fed funds futures reduced bets that the Fed will cut rates by June to 65%, from 70% on Tuesday, according to the CME Group's FedWatch.
No Fed speakers are scheduled to speak this week ahead of the central bank's March 19-20 meeting.
"This has been the dynamic since December - the battle between market expectations of what the Fed is going to do and the Fed's expectations of themselves," said Jack McIntyre, portfolio manager for global fixed income at Brandywine Global.
The inversion in the yield curve between two-year and 10-year notes narrowed to minus 42.9 bps from minus 44 basis points on Tuesday.
The market is closely watching each new data for the path of U.S. economic growth, which in turn informs the central bank's plans for rate cuts. Tuesday's CPI and previous reports had raised concerns that inflation was heating back up.
"The timing and pace (of inflation) is what's a little frustrating but I still think things are moving in the right direction," McIntyre said.
New data from the Mortgage Bankers Association on Wednesday showed mortgage applications increased 7.1% for the week ending March 8 from a week earlier. This adds to market concerns that the Fed may hold off on rate cuts beyond previous expectations, according to McIntyre.
The Fed is expected to hold rates steady when it meets next week, with market focus policymakers' updated economic and interest rate projections.
The U.S. Treasury is scheduled to auction $22 billion in 30-year bonds later on Wednesday. The auction follows Tuesday's lackluster $39 billion auction of 10-year notes.
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Benchmark 10-year notes yields were last up 2 basis points (bps) on the day at 4.176%, marking three consecutive days of increases. Two-year yields were little changed at 4.602%.This follows Tuesday's consumer price index (CPI), which rose 0.4% last month driven largely by higher costs for gasoline and shelter. So-called core prices - excluding food and energy prices - also gained 0.4%. Headline prices rose 3.2% on an annual basis, while core prices gained 3.8%.
Traders in Fed funds futures reduced bets that the Fed will cut rates by June to 65%, from 70% on Tuesday, according to the CME Group's FedWatch.
No Fed speakers are scheduled to speak this week ahead of the central bank's March 19-20 meeting.
"This has been the dynamic since December - the battle between market expectations of what the Fed is going to do and the Fed's expectations of themselves," said Jack McIntyre, portfolio manager for global fixed income at Brandywine Global.
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The inversion in the yield curve between two-year and 10-year notes narrowed to minus 42.9 bps from minus 44 basis points on Tuesday.
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The market is closely watching each new data for the path of U.S. economic growth, which in turn informs the central bank's plans for rate cuts. Tuesday's CPI and previous reports had raised concerns that inflation was heating back up.
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"The timing and pace (of inflation) is what's a little frustrating but I still think things are moving in the right direction," McIntyre said.
New data from the Mortgage Bankers Association on Wednesday showed mortgage applications increased 7.1% for the week ending March 8 from a week earlier. This adds to market concerns that the Fed may hold off on rate cuts beyond previous expectations, according to McIntyre.
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The Fed is expected to hold rates steady when it meets next week, with market focus policymakers' updated economic and interest rate projections.
The U.S. Treasury is scheduled to auction $22 billion in 30-year bonds later on Wednesday. The auction follows Tuesday's lackluster $39 billion auction of 10-year notes.
(You can now subscribe to our ETMarkets WhatsApp channel)
