BOND REPORT: Treasury Yields Tick Lower As Investors Look Ahead To Inflation Report

Consumer price inflation data will be released at 8:30 a.m. Eastern

Treasury yields extended their three-day decline on Friday ahead of inflation numbers that could aid the case for a more aggressive pace of monetary tightening this year, but potentially hurt holders of U.S. government paper.

The 10-year Treasury yield edged lower 2 basis points to 2.191%, from 2.211% in the previous session. The 2-year Treasury yield fell more than 1 basis point to 1.322%, versus 1.335% on Thursday, while the yield for the 30-year Treasury bond, known as the long bond, also ticked lower more than 1 basis point to 2.775%, from 2.788% in the prior session. Bond prices move inversely to yields.

Investors will brace for a release of consumer-price inflation data (CPI) that could clarify how much the Federal Reserve will tighten monetary conditions. But economists suggest unless the reading for national consumer prices comes in much higher than anticipated, senior Fed officials would likely sit on their decision for a rate increase in December to focus on preparing market participants for a winding down of the balance sheet in the September policy meeting.

Amid weakness in inflation data, market participants have shown concerns that a further rate increase could result in a policy misstep, and inadvertently slow down the economy. Moreover, bondholders are wary of rate increases as higher interest rates mean existing bonds need to be discounted to match the returns of higher-yielding, new issuance.

Economists surveyed by MarketWatch put out a consensus forecast for CPI measures in July to come in at a 0.2% gain for July from an 0.1% increase in June.

Traders will also look forward to two Fed speakers later in the day, with several senior Fed officials having already spoken this week (http://www.marketwatch.com/story/fed-risks-being-too-aggressive-on-rate-hikes-bullard-says-2017-08-09) on the inflation outlook and whether a further rate increase this year would prove prudent. Dallas Fed President Robert Kaplan, a voting member, will appear in a moderated Q&A in Arlington, VA. at 9:40 a.m. Eastern. Minneapolis Fed President Neel Kashkari, a voting member, will also take questions from a group of community bankers in Minnesota at 11:30 a.m. Eastern.

(END) Dow Jones Newswires

August 11, 2017 08:29 ET (12:29 GMT)