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U.S. Treasury yields moved higher Thursday, ahead of a reading on consumer inflation that will be watched for clues to the speed and scope of interest rate increases and other tightening measures by the Federal Reserve.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.939%
was at 1.939%, compared with 1.928% at 3 p.m. Eastern on Wednesday. -
The 2-year Treasury yield
TMUBMUSD02Y,
1.350%
was at 1.3468% versus 1.346% on Wednesday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.239%
stood at 2.246%, up from 2.232% late Wednesday.
What’s driving the market?
Inflation data will be front and center with the release at 8:30 a.m. Eastern of the U.S. January consumer-price index. Economists surveyed by The Wall Street Journal look for January CPI to show a 7.2% year-over-year rise after a 7% December increase that was the hottest in nearly 40 years. CPI is expected to show a 0.4% monthly rise, slowing after a 0.5% increase in December.
The core index, which strips out volatile food and energy prices, is also expected to rise 0.4%, which would bring its year-over-year rise to 5.9% versus 5.5% in December.
See: Will hot inflation data kill the stock-market bounce? What investors want to see
The Federal Reserve has signaled it will move aggressively to rein in inflation after previously dismissing price pressures as transitory. Market participants have pushed up Treasury yields in anticipation of benchmark interest rate increases, beginning in March, and other measures to tighten monetary policy.
What do analysts say?
“At the moment, markets see a 25 bp (basis point) hike in March as more likely than a 50 bp increase. A higher-than-expected CPI reading would help shift the odds in favor of a bigger Fed move, with [nonfarm payrolls] for February (to be released on 4 March) being the make-or-break data,” said analysts at UniCredit, in a Thursday note. “Bolder Fed action in the short term would probably put a lid on inflation faster, thereby leaving the terminal rate priced in by markets roughly unchanged.”
A single surprise to the downside, meanwhile, wouldn’t be enough to initiate a meaningful repricing of Fed expectations, but “would take the wind out of a 50 bp hike scenario,” they said, with areas of the curve, such as the 5-year Treasury, that have incorporated expectations for more tightening likely giving back some of their recent yield increase, they said.
