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Bond Report: Treasury yields hold steady before U.S. inflation data

Bond Report

U.S. consumer prices are forecast to increase by 0.3% in August

Treasury yields struggled for direction on early Friday’s trade as investors waited to parse a snapshot of U.S. price pressures.

What are Treasurys doing?

The 10-year Treasury note yield

edged 0.5 basis point up to 0.689%, while the 2-year note rate

was steady at 0.143%. The 30-year bond yield

was up 0.3 basis point to 1.436%. Bond prices move inversely to yields.

What’s driving Treasurys?

U.S. consumer prices for August are forecast at a 0.3% increase, cooling from an 0.6% jump in the previous month. The more stable core inflation gauge, stripping out for volatile food and energy prices, is expected to rise 0.2%.

Strong inflation numbers can strengthen the narrative that price pressures will normalize as the U.S. economy recovers from the depths of the COVID-19 pandemic. That is likely to weigh on values for longer-dated bonds, which are the most vulnerable maturities to the corrosive influence of inflation.

The 10-year breakeven rate was at 1.69%, reflecting what holders of Treasury inflation-protected securities expect price levels to average over the next decade.

What did market participants’ say?

“It is hard to build the case for materially firmer core inflation when goods prices are being suppressed by global forces ,” said Tom Porcelli, chief U.S. economist for RBC Capital Markets.

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