Treasury yields fall after inflation data matches expectations

Yields on U.S. government bonds edged down on Friday after data showing fastest inflation in decades bolstered investor expectations of a slowing economy next year as the Federal Reserve tightens policy monetary.

In recent trading, the yield on the benchmark 10-year US Treasury bond was 1.479%, according to Tradeweb, up from 1.486% on Thursday.

Yields, which fall when bond prices rise, rose overnight and then fell after the Labor Department said the consumer price index rose 6.8% in November compared to to the previous year. It was the fastest pace since 1982 and the sixth consecutive month in which inflation has exceeded 5%.

The so-called core price index, which excludes the often volatile food and energy categories, rose 4.9% in November from the previous year and 0.5% from the previous year. last month. These corresponded to the forecasts of economists surveyed by the Wall Street Journal.

“It was a feeling of very high inflation, but it was a feeling of high inflation that was already expected and should have been built into the market,” said Blake Gwinn, head of US rate strategy at RBC Capital. Market.

Treasury yields often rise and fall with inflation expectations, both because faster inflation eats away at the purchasing power of interest payments and because it may cause the Fed to raise interest rates. short-term interest, which play a major role in determining short-term Treasury yields in particular.

T-bill yields rose sharply a month ago when October CPI data beat expectations, dampening hopes that inflation could subside quickly on its own without major central bank intervention.

Since then, two major developments that have affected bond prices have been the emergence of the Omicron Covid-19 variant and signals from central bank officials that they may hike rates next year even earlier than expected. .

Both helped lower investor expectations for long-term growth and inflation and lowered the 10-year yield, although the prospect of tighter monetary policy raised short-term yields. .

In recent trading, the yield on the two-year note was 0.680%, according to Tradeweb, down slightly from 0.684% on Thursday, an indication that investors did not immediately believe the CPI report would have a major impact. on Fed policy.

Write to Sam Goldfarb at [email protected]

The US Treasury building in Washington, DC last month.


Samuel Corum / Bloomberg News

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