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U.S. Treasury yields rose Wednesday morning, after data showing consumer prices rose sharply again in April, driving the rate of inflation to the highest level in nearly 13 years in the aftermath of the COVID pandemic as businesses grapple with supply shortages that are raising the cost of many goods and services.
How are Treasurys trading?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.671%
was at 1.658%, versus 1.623% on Tuesday at 3 p.m. ET. -
The 30-year Treasury bond
TMUBMUSD30Y,
2.385%
was at 2.366%, compared with 2.352% late Tuesday. -
The 2-year Treasury note
TMUBMUSD02Y,
0.176%
was trading at 0.165%, after finishing at 0.159%.
What’s driving the fixed-income market?
Concerns over inflation were renewed on Wednesday after the consumer-price index soared 0.8% in April to match the biggest monthly increase since 2009, the government said Wednesday. Economists polled by Dow Jones and The Wall Street Journal had forecast a milder 0.2% advance.
The rate of inflation over the past year jumped to 4.2% from 2.6% in the prior month—the highest level since 2008. The pace of inflation has surged after years of languishing at unusually low levels.
A sustained bout of inflation could cause the Federal Reserve to move more rapidly to withdraw its easy-money policies and bond-buying programs that have helped to support financial markets since the pandemic took hold in the U.S. last year, analysts believe.
Federal Reserve Vice Chairman Richard Clarida on Wednesday, after the CPI data was released, said that he was more worried about the health of the U.S. labor market than high inflation.
“The near-term outlook for the labor market appears to be more uncertain than the outlook for activity,” Clarida said, in remarks at the start of a discussion of the outlook with the National Association for Business Economics.
The Fed has said it would maintain its low interest rate policy until more progress is made on reducing unemployment while achieving its inflation goal.
Atlanta Fed President Raphael Bostic delivers a speech at the Council on Foreign Relations at 1 p.m. Eastern. At 1:30 p.m., Philadelphia Fed President Patrick Harker speaks on higher education at Institutions of Higher Education at 1:30 p.m.
What are strategists and traders saying?
“This data is supportive of the idea that near-term demand / supply imbalances associated with bottlenecks in the goods pipeline and labor shortages and other frictions in services sectors facing a release of pent-up demand are generating bigger and broader upward pressures on prices than the Fed likely anticipated,” wrote Krishna Guha, a former top official at the New York Fed and now Vice chairman of Evercore ISI.
“The question is how much implication this has for monetary policy. Our view is—as implausible as this may seem—not much, subject to an important caveat centered on inflation expectations,” he said.
