NEW YORK (Reuters) - The U.S. bond market’s gauges of investors’ inflation outlook held at lower levels on Thursday as the Federal Reserve’s preferred price gauge in the first quarter was revised lower, feeding expectations that inflation could soften.
The core rate on personal consumption expenditure, which Fed policy makers prefer over the consumer price index as their measure of the inflation trend, grew at a 1.0% pace in first three months of 2019 from a year earlier. It was revised down from a 1.3% rate reported last month.
The economy grew at a 3.1% pace in the first quarter, a tad softer than 3.2% initially reported.
At 9:27 a.m. (1327 GMT), the yield spread between 10-year Treasury Inflation Protected Securities and regular 10-year Treasuries was 1.755%, off marginally from late on Wednesday, Tradeweb data showed. It held above its lowest level since early January reached on Wednesday and has fallen from a near six-month high of 1.979% on April 25.
TIPS breakeven rates rebounded from their session trough as bond yields further retraced from multi-month lows set on Wednesday.
Fed officials have downplayed the softening in price growth in early 2019 as temporary. Still, some have acknowledged the risk on domestic growth from a protracted trade battle between China and the United States.
“Thank goodness any price weakness can be safely dismissed as transient,” Chris Low, chief economist at FTN Financial wrote in a research note. “Or, at least, that’s the way the Fed, safe in the knowledge that what it does is right and what happens in the markets and in the real world is wrong, will likely conclude.”
Reporting by Richard Leong; Editing by Chizu Nomiyama and David Gregorio