U.S. Government Bonds Edge Lower After Inflation Data

By Gunjan Banerji Features Dow Jones Newswires

Government bond prices were little changed Thursday after a key measure of consumer prices rose in August.

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The yield on the benchmark 10-year U.S. Treasury note was recently 2.195%, according to Tradeweb, from 2.194% on Wednesday. Yields rise as bond prices fall.

Yields initially climbed after Labor Department data showed that U.S. consumer prices rose last month at the strongest rate since January. The consumer-price index ticked up 0.4% in August from the prior month, spurred by an increase in gasoline prices after Hurricane Harvey caused a temporary shutdown in Texas refineries.

The 10-year yield climbed as high as 2.223% early Thursday before receding as investors assessed the key economic data points. The note's yield has risen for three straight sessions.

The latest data could be a sign that inflation is picking up after months of weakness, and arrives ahead of the Federal Reserve's scheduled meeting next week to contemplate the future path of interest rates. Inflation is a threat to government security prices because it erodes the purchasing power of their fixed payments.

The figures initially lifted optimism about the inflation picture, though a separate Labor Department report showing Americans' average weekly earnings fell 0.6% in August from a month earlier damped investors' enthusiasm, said George Rusnak, co-head of global fixed-income strategy for Wells Fargo Investment Institute.

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"The income data is an important component of inflation," Mr. Rusnak said.

Other data from the Labor Department showed the number of Americans applying for new unemployment benefits fell last week, while remaining higher than two weeks ago, because of the impact of Hurricane Harvey. Initial jobless claims, a proxy for layoffs across the U.S., ticked down by 14,000 to a seasonally adjusted 284,000 for the week ending Sept. 9, lower than what economists surveyed by The Wall Street Journal had expected.

While jobless claims have remained low for several years, flooding and damage in Texas, Louisiana and Florida caused by Hurricanes Harvey and Irma could temporarily increase job losses.

Given the potential for the natural disasters to influence recent data, Mr. Rusnak said that he is taking Thursday's data "with a grain of salt, " and is more focused on the longer-term economic outlook.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

U.S. government bonds weakened for a fourth consecutive day after a key measure of consumer prices rose in August.

The yield on the benchmark 10-year U.S. Treasury note edged up to 2.199% from 2.194% on Wednesday, notching its longest streak of increases since early July. Yields rise as bond prices fall.

Yields initially spiked after Labor Department data showed that U.S. consumer prices rose last month at the strongest rate since January. The consumer-price index ticked up 0.4% in August from the prior month, spurred by an increase in gasoline prices after Hurricane Harvey caused a temporary shutdown in Texas refineries.

The latest data could be a sign that inflation is picking up after months of weakness, and arrives ahead of the Federal Reserve's scheduled meeting next week to contemplate the future path of interest rates. Inflation is a threat to government bond prices because it erodes the purchasing power of their fixed payments and makes it more likely the Fed will raise interest rates.

In one signal that the market's expectations for long-term inflation is slightly higher than it was several weeks ago, the 10-year break-even rate, the yield premium of the 10-year Treasury bond to the 10-year Treasury inflation-protected security, was roughly 1.85 percentage points on Thursday, according Tradeweb. That indicates investors expect an annual inflation rate of 1.85% over the next decade, up from around 1.66% in June.

Today's data initially lifted optimism about the inflation picture, but a separate Labor Department report showing Americans' average weekly earnings fell 0.6% in August from a month earlier may have dampened investors' enthusiasm, said George Rusnak, co-head of global fixed-income strategy for Wells Fargo Investment Institute .

"The income data is an important component of inflation," Mr. Rusnak said.

Other data from the Labor Department showed the number of Americans applying for new unemployment benefits fell last week, while remaining higher than two weeks ago, because of the impact of Hurricane Harvey.

Given the recent storms' potential influence on economic data, Mr. Rusnak said that he is taking Thursday's measures "with a grain of salt."

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

September 14, 2017 16:45 ET (20:45 GMT)