Treasury yields fell Thursday, after an eagerly awaited U.S. December consumer-price index reading showed inflation continued to slow, in line with expectations.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.199%
fell 7.1 basis points to 4.157%. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.550%
declined 6.1 basis points to 3.493%. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.709%
fell 3.9 basis points to 3.643%.
What’s driving markets
The U.S. consumer-price index fell 0.1% in December and posted the first decline since the onset of the pandemic in 2020, pointing to a further slowdown inflation after it hit a 40-year peak last summer. Economists polled by The Wall Street Journal had forecast a 0.1% decline in the index.
The annual rate of inflation fell for the sixth month in a row to 6.5% from 7.1%. That’s the lowest level in more than a year and it’s down from a 40-year peak of 9.1% last summer.
The so-called core rate of inflation, which omits food and energy, rose 0.3%. That matched Wall Street’s forecast. The advance in the core rate over the past 12 months dropped to 5.7% from 6% to mark the lowest level in a year. The Fed views the core rate as a more accurate predictor of future inflation trends.
Meanwhile, Philadelphia Federal Reserve Bank President Patrick Harker said 25 basis point rate hikes would likely be appropriate going forward, according to news reports.
What are analysts saying
“Treasuries initially sold off following the data, but have since stabilized and the most enduring trend has been toward a flatter curve,” said Ian Lyngen, rates strategist at BMO Capital Markets, in a note.
“The 3-month annualized core CPI is down to 3.1% and at least another 1% lower if using new leases versus existing leases that have a six to twelve month lag. We continue to expect the Fed to only raise rates two more times as CPI continues to moderate,” said Bryce Doty, senior portfolio manager at Sit Investment Associates, in emailed comments.
