U.S. Treasurys Strengthen After Soft Inflation Reading
The yield on the benchmark 10-year U.S. Treasury note fell Friday, capping its largest one-week decline in more than a month, as another soft inflation reading boosted expectations that the Federal Reserve will be cautious in raising interest rates.
Bond prices rallied after the Labor Department said the consumer-price index was unchanged in June from the prior month. Excluding food and energy, prices rose 0.1%. Economists surveyed by The Wall Street Journal had expected overall prices to advance 0.1% and core prices to gain 0.2% on the month.
The lower-than-expected figures were the latest sign of muted inflation, which is a main threat to government bonds because it erodes the purchasing power of their fixed returns and can lead to higher interest rates from the Fed.
The 10-year yield settled at 2.319%, compared with 2.348% Thursday and 2.393% a week earlier. It was the yield's largest weekly decline since the week ended June 2. Yields fall when bond prices rise.
Friday's data came after testimony before Congress this week from Fed Chairwoman Janet Yellen, which also sent yields lower. While Ms. Yellen reiterated her expectation that inflation will rise over the coming years, she also said the central bank would be watching inflation data closely and could reassess its strategy if it continues to disappoint.
Investors interpreted Ms. Yellen's comments as "modestly dovish" and Friday's data "helps feed into that view," said John Canavan, market analyst at Stone and McCarthy Research Associates.
Adding to the downward pressure on yields Friday was a report from the Commerce Department that retail sales fell 0.2% in June from the prior month. That was below the 0.1% gain expected by economists.
Still, bonds quickly pared gains. After initially falling below 2.3%, the 10-year yield climbed back above that level, reflecting strong forces that are still pushing up on yields, analysts said.
Before this week, investors had been selling bonds, driven largely by anxiety that an improving global economy may allow major central banks outside of the U.S. to scale back on stimulus efforts that have helped lift asset prices since the financial crisis.
A big reason why bond yields climbed Thursday, some analysts and investors said, was a report from The Wall Street Journal that European Central Bank President Mario Draghi is scheduled to address the Federal Reserve's Jackson Hole conference in August. Mr. Draghi is expected to give further signs of the ECB's growing confidence in the eurozone economy and its reduced need for monetary stimulus, the Journal reported, citing a person familiar with the matter.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
July 14, 2017 17:01 ET (21:01 GMT)