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Bond Report: Treasury yields drift lower amid sharp rise in U.S. wholesale prices and new pandemic low on jobless claims

Treasury yields drifted lower early Thursday even though data showed U.S. wholesale prices rose sharply in September and weekly jobless claims sank to a new pandemic low amid a frantic effort by companies to hire more workers.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.531%

    fell to 1.528%, down from 1.549% at 3 p.m. Eastern on Wednesday.
  • The 2-year Treasury yield
    TMUBMUSD02Y,
    0.358%

    was at 0.354%, compared with 0.368% late Wednesday.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    2.034%

    yielded 2.034%, down from 2.041% on Wednesday.
What’s driving the market?

Government data released on Thursday added to growing fears that the U.S. may be stuck with persistently higher inflation as employers continued to struggle to hold onto workers.

U.S. wholesale prices rose sharply in September for the ninth month in a row and signaled that the highest bout of inflation in 30 years is likely to last longer.

The producer price index jumped 0.5% last month — with higher costs of gasoline, beef, vegetables, electricity and chemicals being the biggest contributors. Economists surveyed by The Wall Street Journal were looking for a 0.6% monthly rise.

Meanwhile, weekly jobless benefit claims sank to a new pandemic low and fell below 300,000 for the first time in a year and a half, amid a frantic effort by companies to hire more workers. New jobless claims sank by 36,000 to 293,000 in the seven days ended Oct. 9 from a revised 329,000 in the prior week, the government said Thursday. Economists polled by The Wall Street Journal had estimated new claims would drop to a seasonally adjusted 318,000.

The fall in yields, particularly in longer-dated maturities, despite strong U.S. inflation data partly reflects fears that Federal Reserve officials may eventually be forced to more aggressively raise interest rates than had been anticipated, risking a policy error that could undercut future economic growth, according to some analysts. They said it also reflect worries about a scenario in which the central bank would be tightening policy into a stagnating economy.

Read: Stronger-than-expected U.S. inflation data has bond traders weighing the risk of a Fed policy error

The yield curve — a line that plots the differences between yields across Treasury maturities — had flattened on Wednesday even though the headline September consumer-price index came in slightly above expectations, and the minutes of the September Federal Reserve meeting affirmed policy makers are leaning toward beginning to taper monthly asset purchases before the end of the year.

Minutes of the Fed’s most recent meeting, released on Wednesday, indicated that the tapering process could begin by mid-November or mid-December, in line with signals from Fed officials and market expectations.

New York Fed executive vice president Lorie Logan is scheduled to give a speech at noon Eastern time to the Money Marketeers of New York University, which may shed more light on policy makers’ thinking. Also slated to speak later on Thursday were Richmond Fed President Tom Barkin; New York Fed President John Williams, moderating a panel; and Philadelphia Fed President Patrick Harker.

What are analysts saying?

In the PPI report, “disappointment was the theme,” said BMO Capital Markets strategist Ian Lyngen. “Overall, an uninspired round of data that has done little to add to the directional skew in rates.”

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