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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 turned mixed early Tuesday after the data showed U.S. inflation moderating in August.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.324%

    rose to 1.329%, 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,
    1.896%

    traded at 1.906%, slightly up from 1.905% late Monday.
What’s driving the market?

The U.S. cost of living rose in August at the slowest pace in seven months, signaling a big surge in inflation this year may have peaked, but Americans probably aren’t going to get much relief from higher prices anytime soon. The consumer price index climbed 0.3% in August, compared to a rise of 0.5 % in July, the government said Tuesday. Economists polled by The Wall Street Journal had expected a 0.4% rise in August.

Meanwhile, the rate of inflation over the past year slipped to 5.3% in August from 5.4%. It’s the first decline since last October.

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

Investors are sifting 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?
  • “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.”

: Fund managers are saying one thing and doing another, latest Bank of America survey finds

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