U.S. Government Bonds in Holding Pattern as Investors Await Inflation News

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds remained stuck in a holding pattern Friday, with yields slipping slightly on a daily and weekly basis as investors awaited more data to either confirm or challenge their lowered inflation expectations.

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The yield on the 10-year Treasury note settled at 2.146%, compared with 2.153% Thursday and 2.157% the previous Friday.

Yields, which fall when bond prices rise, have been remarkably steady in recent days. The 10-year yield hovered just above its closing low of the year for four consecutive sessions.

Yields are being held down to a large degree by a run of soft inflation data, which has boosted the appeal of government debt and raised doubts about the Federal Reserve's plans to raise interest rates at least one more time this year. Their decline has been kept in check, at the same time, by key Fed officials insisting inflation is still on track to reach their 2% target.

Inflation is a main threat to government bonds because it chips away the purchasing power of their fixed returns and can lead to tighter monetary policy.

The next major reading on inflation won't come until the end of next week, when the Commerce Department releases its latest report on the personal-consumption expenditures price index, the Fed's preferred inflation gauge. A week after that, investors will be closely watching data on wage inflation contained in the June nonfarm jobs report.

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"Anything inflation related will probably have a little more weight in the next few months, because that's the key indicator that's been missing," said Aaron Kohli, interest-rate strategist at BMO Capital Markets.

Complicating the inflation outlook has been the recent volatility in oil prices, which entered into a bear market this week for the first time since last summer. Lower energy prices depress headline inflation.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

June 23, 2017 16:13 ET (20:13 GMT)