ETF News

TREASURIES-U.S. yields move lower after inflation data

NEW YORK, April 12 (Reuters) - U.S. Treasury yields moved lower on Tuesday, with the benchmark 10-year Treasury yield on track for its first decline in eight sessions after a reading on inflation showed an acceleration in March, but was less than many market participants expected.

The Labor Department said the consumer prices index (CPI) jumped 1.2% last month, in line with forecasts and the largest monthly gain since September 2005, versus a rise of 0.8% in February.

In the 12 months through March, CPI climbed 8.5%, the biggest year-on-year gain since December 1981, after a 7.9% rise in February and just above the 8.4% estimate.

“You’ve got a relatively mature move in terms of yields, you’ve got a bias towards a lot of shorts out there already, which means you have to find a new marginal short, and you’ve got this small but relatively vocal community saying maybe that is the top for CPI and maybe it could roll over,” said Huw Roberts, head of analytics at Quant Insight.

“That all conspires to give you a ‘buy the rumor, sell the fact’ type of price action,” Roberts added.

The yield on 10-year Treasury notes was down 6.6 basis points to 2.716%. The yield had earlier climbed to 2.836%, its highest since Dec. 19, 2018.

The yield on the 30-year Treasury bond was down 4.9 basis points to 2.772%, on track for its first decline in seven sessions. The yield had earlier touched 2.86%, its highest in nearly three years.

High inflation and comments from Federal Reserve officials have cemented the view the central bank will be more aggressive in taking steps to combat rising prices, which has also sparked concerns the Fed may make a policy error and cause a recession.

On Monday, Chicago Federal Reserve Bank President Charles Evans indicated he would not necessarily oppose getting interest rates up to a neutral setting of 2.25% to 2.5% by the end of the year, a pace that would necessitate a couple of 50 basis-point rate hikes at upcoming Fed meetings.

Expectations for a 50 basis point rate hike at the Fed's May meeting stand at 87.7%, according to CME's FedWatch Tool here.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 29.0 basis points after briefly inverting at the end of March.

More supply is expected to come to the market this week, with the Treasury scheduled to auction $34 billion in 10-year notes later on Tuesday. It will also auction $20 billion in 30-year bonds on Wednesday.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 8.4 basis points at 2.424%.

The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 3.345%, after closing at 3.371% on Monday.

The 10-year TIPS breakeven rate was last at 2.915%, indicating the market sees inflation averaging 2.9% a year for the next decade. (Reporting by Chuck Mikolajczak; Editing by David Holmes)