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01 Dec, Thursday
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Bull Trader USA

Bond Report: Treasury yields edge up as investors watch for U.S. consumer inflation report

Treasury yields ticked up early Wednesday as fixed-income investors awaited the latest read on U.S. consumer price inflation.

The October consumer price index data is due at 8:30 a.m. ET. Investors will also keep an eye on the weekly update on Americans seeking unemployment insurance benefits at the same time which is being published a day earlier than usual given Thursday is Veterans Day, a U.S. federal holiday.

A report on wholesale inventories is due at 10 a.m. and an auction of 30-year Treasury bonds later in the session will also be on investors’ radars.

What are yields doing?

The 10-year Treasury rate
TMUBMUSD10Y,
1.476%

was at 1.480%, up from 1.431% at 3 p.m. ET on Tuesday.

The 2-year Treasury note
TMUBMUSD02Y,
0.454%

yields 0.451%, up from 0.409% a day ago.

The 30-year Treasury bond rate
TMUBMUSD30Y,
1.847%

is at 1.855%, rising from 1.820% on Tuesday.

What’s driving the market?

 Fixed-income markets have been whipped around in recent trade, with moves in yields dictated less by fundamental factors such as economic data and more by positioning as the Fedederal Reserve begins withdrawing policy measures that were introduced last year to combat the impact of the coronavirus pandemic on the economy.

However, inflation, which can chip away at a bonds fixed value, has continued to climb above the Fed’s annual 2% inflation target.

A reading of the CPI is expected to jump on both headline and core basis—by 0.6% and 0.4%, respectively. Annual CPI is expected to climb 5.8%, marking the highest level in 30 years.

The CPI update comes a day after news of higher U.S. wholesale prices.

The reports on inflation come as China on Tuesday reported its own factory gate prices surged 13.5% in October, representing the highest level since 1996. However, consumer prices in Beijing rose only 1.5% to a 13-month high, driven mainly by a jump in prices for volatile food and fuel.

The Fed, at the conclusion of its policy gathering on Nov. 3, pledged to be patient about reducing easy-money policies and normalizing interest rates, which has helped to mitigate some of the upward pressure on yields for government debt, but further signs of renewed inflation could renew concerns.

Looking ahead, investors will be watching for a $25 billion auction of 30-year bonds at 1 p.m., after a $39 billion sale in 10-year Treasury notes described as “soft,” according to BMO Capital Markets strategists.

What analysts are saying

“We still believe rates will rise in 1Q 2022 as the Fed tapers and looks to raise rates by mid-year 2022,” wrote managing director Tom di Galoma of Seaport Global Holdings, in a daily note.

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