Government Bonds Strengthen After Soft Inflation Data

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U.S. government bonds were stronger early Friday as investors responded to softer-than-expected inflation data.

The yield on benchmark 10-year Treasury note was 2.289% in recent trading, according to Tradeweb, compared with 2.323% on Thursday. Yields fall as bond prices rise.

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The consumer-price index, a measure of what Americans pay for everything from haircuts to food, recorded its largest monthly gain since January, edging up 0.5% in September from the month earlier, the Labor Department said Friday. However, economists surveyed by The Wall Street Journal had expected a 0.6% gain. Core prices, which exclude volatile food and energy costs, rose just 0.1%--below the 0.2% that economists surveyed by The Journal had forecast.

Treasurys tend to rally on soft inflation data because inflation is a main threat to government bonds, eroding the purchasing power of their fixed payments.

"I think the core CPI numbers were a little disappointing," said Nick Tripodes, a portfolio manager at Federated Investors Inc.

Investors are also faced with uncertainty regarding how a number of U.S. policies will play out, potentially driving investors toward Treasurys before the weekend, said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. President Donald Trump is also nearing a decision on whom to pick to lead the Federal Reserve and recently met with Stanford University economist John Taylor.

Still, Mr. Tripodes and Ms. Jones see the Fed adhering to one more rate increase this year.

A measure of retail sales also rebounded in September, driven by car sales and higher gasoline prices. Sales at restaurants, retail stores and online-shopping platforms ticked up 1.6% in September from the prior month, the Commerce Department said Friday, its largest one-month increase since March 2015.

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

U.S. government bonds strengthened Friday as investors responded to softer-than-expected inflation data.

The yield on the benchmark 10-year Treasury note fell to 2.280%, compared with 2.323% on Thursday and 2.370% the previous Friday. Yields fall as bond prices rise.

The consumer-price index, a measure of what Americans pay for everything from haircuts to food, recorded its largest monthly gain since January, edging up 0.5% in September from the month earlier, the Labor Department said Friday. However, economists surveyed by The Wall Street Journal had expected a 0.6% gain. Core prices, which exclude volatile food and energy costs, rose just 0.1% -- below the 0.2% that economists surveyed by The Journal had forecast.

Treasurys tend to rally on soft inflation data because inflation is a main threat to government bonds, eroding the purchasing power of their fixed payments.

"I think the core CPI numbers were a little disappointing," said Nick Tripodes, a portfolio manager at Federated Investors Inc.

Investors are also faced with uncertainty regarding how a number of U.S. policies will play out, potentially driving investors toward Treasurys before the weekend, said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.

Friday's move punctuated a week of consolidation in the bond market, which had come under pressure for the previous four weeks. Investors have bought bonds in recent days partly in response to geopolitical risks. There is also now a broad consensus that the Federal Reserve will likely raise interest rates in December, adding stability to the market after weeks in which investors gradually came around to that view, according to analysts.

Many investors and analysts still believe that Treasury yields are poised to climb higher in the coming weeks as long as the Fed sticks to its plan to tighten monetary policy. President Donald Trump is also believed to be considering a group of candidates to replace Fed Chairwoman Janet Yellen that includes critics of some of the Fed's previous monetary easing.

The latest inflation data took some attention away from some other, more positive economic releases on Friday.

A measure of retail sales also rebounded in September, driven by car sales and higher gasoline prices. The University of Michigan's preliminary reading on consumer sentiment also surpassed economists' forecasts, reaching its highest level since 2004.

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

(END) Dow Jones Newswires

October 13, 2017 16:30 ET (20:30 GMT)