BOND REPORT: Treasury Yields Struggle For Direction As Traders Focus On Inflation Data

Is the Fed's elusive 2% annual inflation target at hand?

Treasury yields held their ground on Monday after investors looked past speeches from Federal Reserve officials to concentrate on the coming inflation data, which could strengthen the central bank's resolve to tighten monetary policy.

What are Treasurys doing?

The yield for the 10-year benchmark note was mostly flat at 2.480%. The 2-year note yield traded close to last week's levels at 1.960%. The 30-year bond yield also was little changed at 2.812%.

Bond prices move inversely to yields.

What's driving markets?

A raft of central bankers are set to speak this week, following the last minutes from the Federal Open Market Committee that showed the Fed had not factored in the economic effect of the tax bill on monetary policy forecasts. If the legislation gooses growth, that could prompt the Fed to raise rates more than the two or three times investors are expecting this year.

But investors didn't show much appetite for trading as the few speeches on Monday offered no fresh catalyst for bond investors. Atlanta Fed President Raphael Bostic said three to four interest rate hikes ( be too much for 2018, highlighting his dovish credentials as he becomes a voting member of the central bank. Soon after, San Francisco Fed President John Williams cautioned the Fed had limited room to lower interest rates when the next recession came along.

Bond traders will deal with fresh supply as the Treasury Department is set to issue 3-year note, 10-year note and 30-year bond arrive this week.

However, the highlight for most will be the consumer-price index on Friday, a decisive economic number that could help fulfill investor's expectations for stronger price pressures in the coming years. The 10-year break-even rate (, the bond market's gauge for future inflation, broke above the 2% level last week for the first time since March.

Read:Is inflation ever coming back? (

What did market participants say?

"Aside from nominal supply, Friday's CPI is huge. Accelerating inflation (and earnings) has been the biggest missing piece in Fed projections over recent years," wrote Bonnie Anasetti, a trader of Treasury-inflation protected securities for Jefferies.

What else are on investors' radar?

The possibility of a partial government shutdown has been pushed back later to February or March as Congress is expected to pass another stopgap spending bill to keep the government funded beyond Jan. 19. But some say President Donald Trump's demands for financing for a border wall and the Democrats' priorities on immigrations will clash, driving up uncertainty on a successful resolution.

How are other assets doing?

The German 10-year government bond yield edged lower to 0.429% from 0.439%, according to data from Tradeweb.

The greenback rose, with the ICE dollar index up about 0.4% to 92.367. Most of those gains came against the weakening euro, which has slipped since a soft reading in the eurozone's December consumer-price index on Friday.

Tepid price pressures have pushed back the likelihood for a premature end to the European Central Bank's bond-buying. This has frustrated euro bulls relishing the prospect of an end to easy money policies.

(END) Dow Jones Newswires

January 08, 2018 16:26 ET (21:26 GMT)