Treasurys Hold Ground After Inflation Data

FeaturesDow Jones Newswires

U.S. government bonds were steady Friday as new inflation data came in line with expectations.

In recent trading, the yield on the benchmark 10-year Treasury note was 2.488%, according to Tradeweb, compared with 2.483% Thursday.

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Yields, which rise when bond prices fall, registered little reaction after the Commerce Department reported that the price index for personal-consumption expenditures excluding volatile food and energy costs, one of the Federal Reserve's preferred inflation measures, rose 0.1% from the previous month. That matched the projection of economists' surveyed by The Wall Street Journal.

In other data, consumer spending rose by slightly more than economists' had anticipated, while personal income and orders of long-lasting factory goods both failed to meet expectations.

Absent a major surprise, Friday could be a quiet day in the bond market, which closes early at 2 p.m. ET and will remain shut Monday to observe the Christmas holiday.

With trading desks lightly staffed, "the only way that Treasurys are going to do anything today is if they're forced to," said John Canavan, market analyst at Stone and McCarthy Research Associates.

Earlier this week, the bond market was far from quiet as investors abruptly reversed trades that had, over months, shrunk the gap between short and long-term Treasury yields.

One catalyst for the reversal was the passage of tax cuts by Congress, which some investors and analysts think could weigh on long-term Treasurys by adding to the supply of government debt and stoking inflation.

Previously, the move to a smaller differential between short and long-term yields, known on Wall Street as a flattening yield curve, had been prompted by bets that the Federal Reserve will keep raising interest-rates despite soft inflation.

As of Thursday, the spread between the two-year and 10-year yields was 0.606 percentage point. That was up from 0.513 percentage point at the end of last week, though still down from around 0.8 percentage point in late October.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

U.S. government bonds held steady Friday as inflation data came in consistent with expectations.

The yield on the benchmark 10-year Treasury note settled at 2.486%. That was little changed from 2.483% Thursday but up from 2.353% last Friday, marking its largest one-week increase since September.

Yields, which rise when bond prices fall, registered little reaction after the Commerce Department reported that the price index for personal-consumption expenditures excluding volatile food and energy costs, one of the Federal Reserve's preferred inflation measures, rose 0.1% from the previous month. That matched the projection of economists' surveyed by The Wall Street Journal.

In other data, consumer spending rose by slightly more than economists' had anticipated, while personal income and orders of long-lasting factory goods both failed to meet expectations.

The bond market closed early at 2 p.m. EST and will remain shut Monday for Christmas.

"I think right now the market is very much in holiday and year-end mode, " said John Canavan, market analyst at Stone and McCarthy Research Associates.

The bond market was more active earlier this week, as a bout of selling sent the 10-year yield to its highest level since March and expanded the gap between short and long-term yields, which had shrinking over the prior two months.

One catalyst for the shift was the passage of tax cuts by Congress, which some traders think could weigh on long-term Treasurys by adding to the supply of government debt and stoking inflation.

Previously, the move to a smaller differential between short and long-term yields, known on Wall Street as a flattening yield curve, had been prompted by bets that the Fed will keep raising interest rates despite soft inflation.

Such conditions are conducive to a flattening yield curve because short-term yields are based largely on near-term interest-rate expectations, while long-term yields are more sensitive to prospects for inflation.

Despite the unwind this week, some investors expect the yield curve to resume its flattening, as they see little reason why inflation will perk up in 2018 after lagging this year.

As of Friday, the spread between the two-year and 10-year yields was 0.592 percentage point. That was up from 0.513 percentage point at the end of last week, though still down from around 0.8 percentage point in late October.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

December 22, 2017 15:15 ET (20:15 GMT)