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Bond Report: U.S. Treasury yields mostly higher after inflation data

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U.S. Treasury yields ticked higher Wednesday, with short-term rates leading the way after September inflation data did little to change expectations around the Federal Reserve’s timeline for tapering its bond purchases.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.569%

    stood at 1.581%, up from 1.579% at 3 p.m. Eastern on Tuesday.
  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.370%

    was 0.374%, compared with 0.348% Tuesday afternoon.
  • The 30-year Treasury bond yield
    TMUBMUSD30Y,
    2.070%

    declined to 2.073%, compared with 2.106%.
What’s driving the market?

The consumer price index rose 0.4% last month, the government said Wednesday. Higher prices for food, shelter and gasoline were the biggest drivers. Economists polled by The Wall Street Journal had forecast a 0.3% increase in the CPI. The core rate, which excludes food and energy, rose 0.2% versus expectations fora 0.3% rise.

The pace of inflation over the past year, meanwhile, edged up to 5.4% in September from 5.3% in the prior month. That’s more than double the Federal Reserve’s 2% average target. The core rate was unchanged, rising 4% year over year.

Analysts had said risks around the reading were skewed to the upside, with the potential for a surprise to drive a further increase in yields after the 10-year rate pushed above 1.6% last week.

Read: Global growth outlook is darkening just as the next major U.S. inflation report is about to land

The Fed is already widely expected to announce next month that it will begin tapering its monthly bond purchases.

Minutes from the Federal Reserve’s Sept. 21-22 meeting are due at 2 p.m. Eastern. Fed Gov. Lael Brainard and Fed Gov. Michelle Bowman are both scheduled to speak after the market close on Wednesday.

Investors will also be watching an auction of 30-year Treasury bonds.

What are analysts saying?

“There is nothing in this report to imply the Fed will alter the tapering timeline nor is there anything to challenge the ‘transitory’ characterization” of inflation, said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

Treasurys “were bull flattening ahead of the data and since the release we have seen the bulk of the price action retained even if rates are off the lows,” he said, in a note.

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