Bond Report: U.S. Treasury yields hold steady ahead of inflation data

Treasury yields were holding steady Wednesday morning, as fixed-income investors awaited a reading on the U.S. consumer price index due at 8:30 a.m. Eastern that may show a rise in inflation as the economy recovers from the COVID pandemic.

How are Treasurys trading?
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.620%

    was down 0.7 basis point at 1.616%, versus 1.623% on Tuesday at 3 p.m. ET.

  • The 30-year Treasury bond
    TMUBMUSD30Y,
    2.337%

    was off 1.3 basis points, yielding 2.339%, compared with 2.352% late Tuesday.

  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.156%

    was trading at 0.153%, after finishing at 0.159%.

Bond prices fall as yields rise.

What’s driving the fixed-income market?

Concerns over inflation have dominated trading in fixed-income markets in the first quarter this year and investors await the April consumer price index data Wednesday with some trepidation as the index show the largest annual rise in a decade.

April’s consumer-price index is forecast to see a month-over-month rise of 0.2%, and a 3.6% climb since last year, according to consensus estimates of economists surveyed by Econoday.

The consumer price index excluding food and energy is expected to rise 0.3% in April and 2.3% over the past 12-months. In March inflation rose at the fastest pace in two and a half years as the economy recovered from the coronavirus pandemic.

A sustained bout of inflation could cause the Federal Reserve to move more rapidly to withdraw its easy-money policies and bond-buying programs that have helped to support financial markets since the pandemic took hold in the U.S. last year, analysts believe. However, the Fed has said it will maintain its low interest rate policy until more progress is made on reducing unemployment while achieving its inflation goal.

Looking ahead, the Fed’s No. 2 Richard Clarida speaks at the National Association for Business Economics at 9 a.m.

Atlanta Fed President Raphael Bostic delivers a speech at the Council on Foreign Relations at 1 p.m. Eastern. At 1:30 p.m., Philadelphia Fed President Patrick Harker speaks on higher education at Institutions of Higher Education at 1:30 p.m.

What are strategists and traders saying?

“While the market is already expecting a large jump in the headline consumer price index in April, there could be a knee-jerk reaction and traders will be closely watching the bond market,” wrote Milan Cutkovic, market analyst at Axi, in a daily note.

“Rising yields could put further pressure on the stock market,” the analyst said.

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