U.S. Government Bonds Fall for Third Straight Session

By Akane Otani Features Dow Jones Newswires

U.S. Treasurys were largely steady after a gauge of U.S. business prices pointed to continued softness in inflation.

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The yield on the benchmark 10-year U.S. Treasury note was recently at 2.169%, compared with 2.171% on Wednesday.

Yields, which fall as bond prices rise, inched lower overnight and then held their declines after the Labor Department said the producer price index for final demand, which measures changes in prices that U.S. companies receive for goods and services, increased a seasonally adjusted 0.2% in August from a month earlier.

Economists surveyed by The Wall Street Journal had expected to see an increase of 0.3% from the prior month.

The PPI reading was the latest to show that inflation pressures have remained muted this year, even as the U.S. labor market has extended its recovery, and the unemployment rate has remained around a 16-year low.

Various measures of inflation, including the Federal Reserve's preferred gauge -- the Commerce Department's personal-consumption expenditures price index -- have largely run under the central bank's 2% target throughout the year. That has led many investors to question how quickly the Fed will be able to push through future interest-rate increases, and boosted the appeal of government bonds. Inflation tends to weaken demand for Treasurys since it chips away at the purchasing power of their fixed returns.

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Government bonds have also benefited from investors' skepticism over the timing of potential policy changes in Washington. Bets that tax cuts and fiscal stimulus would spark economic growth and inflation had spurred a selloff in Treasurys late last year, although yields on the 10-year note are now below where they were at the end of 2016.

Many investors say yields are likely to remain in a narrow range through the end of the year, unless data suggests an unexpected pickup in inflation.

"We've yet to see wage growth that would filter into higher inflation numbers, which is really why rates have yet to meaningfully move higher despite where we are in the cycle," said Marc Bushallow, managing director of fixed income at Manning & Napier.

Write to Akane Otani at akane.otani@wsj.com

U.S. government-bond prices slid for a third consecutive day, as investors' demand for assets seen as safer stores of value waned.

The yield on the benchmark 10-year U.S. Treasury note settled Wednesday at 2.194%, compared with 2.171% on Tuesday. Yields rise as bond prices fall.

Investors retreated from U.S. Treasurys and gold, while major U.S. stock indexes rose to all-time highs. The moves in recent days have marked a reversal from last week, when concerns about flaring tensions between the U.S. and North Korea and fears about the impact of Hurricane Irma sent havens higher while pressuring stocks.

With early estimates suggesting damage from Hurricane Irma was less severe than initially expected, and geopolitical concerns appearing to cool, investors said there appeared to be few new catalysts for bond prices to jump higher.

Earlier, bond yields held steady after the Labor Department said the producer-price index for final demand, which measures changes in prices that U.S. companies receive for goods and services, increased a seasonally adjusted 0.2% in August from a month earlier.

Economists surveyed by The Wall Street Journal had expected to see an increase of 0.3% from the prior month.

The PPI reading was the latest to show that inflation pressures have remained muted this year, even as the U.S. labor market has extended its recovery and the unemployment rate has remained around a 16-year low.

Various measures of inflation, including the Federal Reserve's preferred gauge -- the Commerce Department's personal-consumption expenditures price index -- have largely run under the central bank's 2% target throughout the year. That has led many investors to question how quickly the Fed will be able to push through future interest-rate increases, and boosted the appeal of government bonds. Inflation tends to weaken demand for Treasurys since it chips away at the purchasing power of their fixed returns.

Many investors say yields are likely to remain in a narrow range through the end of the year, unless data suggest an unexpected pickup in inflation.

"We've yet to see wage growth that would filter into higher inflation numbers, which is really why rates have yet to meaningfully move higher despite where we are in the cycle," said Marc Bushallow, managing director of fixed income at Manning & Napier.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

September 13, 2017 17:45 ET (21:45 GMT)