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Treasury yields fell Wednesday after data showed U.S. inflation remained modest and after a successful auction of benchmark 10-year notes, despite the passage by Congress of a $1.9 trillion spending bill which will increase government borrowing further and may overheat the economy.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 1.516% fell 2.5 basis points to 1.520%, while the 2-year note rate TMUBMUSD02Y, 0.160% was down a basis point to 0.155%. The 30-year bond yield TMUBMUSD30Y, 2.243% declined 1.2 basis points to 2.246%.
What’s driving Treasurys?
Consumer prices rose 0.4% in February from an 0.3% increase in January, in line with economists’ forecasts, but core CPI, which strips out volatile food and energy prices, only rose by 0.1%, indicating more longer-term drivers of inflation had yet to show up in the data.
On an annual basis, headline inflation over the past 12 months moved up to 1.7% from 1.4% but the core rate slipped to 1.3% from 1.4% in January.
Nonetheless, investors remain wary of the bugaboo of inflation. They fret the full stimulus bill of $1.9 trillion cleared by Congress on Wednesday could contribute to the wave of consumer spending expected once the pandemic comes under control later this year.
President Joe Biden plans to sign the $1.9 trillion COVID-19 stimulus package into law on Friday, White House press secretary Jen Psaki said.
The OECD said this week that President Biden’s coronavirus aid package will add about one percentage point to global economic growth in 2021 and America’s growth rate was revised up to 6.5% from 3.2%. Morgan Stanley raised its 2021 forecast for U.S. economic growth to 7.3% from 6.5%, a pace unsurpassed since the Korean War boom.
With four days until supplemental unemployment benefits begin running out, the House will take the final vote on the coronavirus relief bill on Wednesday, clearing the path for the President to sign the stimulus package and send another round of economic aid to U.S. households, small businesses and municipal governments.
See: Investors blinded by over-optimism on vaccine rollout must see these risks, warns economist
Also drawing focus, the U.S. Treasury Department auctioned off $38 billion of 10-year notes, with the results largely in line with previous sales of the benchmark maturity.
Investors were closely watching for any signs of indigestion after a poor 7-year note auction in late February accelerated a bond-market selloff that took the 10-year note to 1.60% for the first time this year.
Read: Treasury auctions this week may add kindling to bond-market turbulence
What did market participants say?
“Concerns that the market wasn’t ready to try and catch a falling knife with this auction, given the [40 basis point] selloff over the past month, seem to be put to rest for now,” said Thomas Simons, senior money market economist at Jefferies.
