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Bond Report: Treasury yields remain near one-month high as headline CPI annual rate remains at 5.4% in July

Longer-end Treasury yields were slightly up on Wednesday and hovering around their highest levels since mid-July, after the U.S. consumer price index report showed inflation moderating last month but remaining near a 20 year year high.

What yields are doing
  • The 10-year Treasury note yield
    TMUBMUSD10Y,
    1.357%

    was at 1.352%, compared with 1.342% at 3 p.m. Eastern Time on Tuesday. Yields for debt rise as prices fall.
  • The 30-year Treasury bond yields
    TMUBMUSD30Y,
    2.013%

    2.00%, versus 1.984% a day ago.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.232%

    was yielding 0.233%, compared with 0.236% on Tuesday.

On Tuesday, the 10-year and 30-year Treasury yields hit their highest yields since July 14, while the 2-year touched its highest since July 13, based on 3 p.m. levels, according to Dow Jones Market Data.

What’s driving the market?

The rate of inflation for the 12 months ended in July remained at 5.4% for the second straight month, a 20-year high, the Labor Department said Tuesday.

The consumer price index climbed 0.5% on a month-over-month basis last month. That’s down from 0.9% in June and matched the expectations of economists surveyed by The Wall Street Journal.

The closely watched measure of inflation that omits volatile food and energy — the so-called core price index — rose 0.3%, below expectations for a 0.4% gain. And the 12-month rate decelerated to 4.3% from 4.5%, which was a 29-year high.

Wednesday’s bond-market moves come after yields also rose yesterday, when the U.S. Senate voted 69-30 Tuesday to approve the bipartisan infrastructure bill — a move that sends the $1 trillion measure over to the House of Representatives for its approval.

Later Wednesday, investors may be on the lookout for a reading on inflation at 10 a.m. from the Atlanta Fed, which provides its own monthly survey of year-ahead inflation expectations and inflation uncertainty.

There’s also an auction of $41 billion in 10-year Treasury notes at 1 p.m., which will be notable coming after the readings of inflation.

Kansas City Federal Reserve President Esther George is slated to speak at noon ET on Wednesday, while Atlanta Fed President Raphael Bostic was scheduled to speak at 10:30 a.m.

What analysts are saying
  • “The more moderate inflation print may allow investors to feel comfortable buying the recent dip in Treasuries, particularly in the 5y part of the curve as there is little rush for the Fed to hike rates quickly,” TD Securities strategists Jim O’Sullivan, Oscar Munoz, and others wrote in a note. “We expect 5y TIPS BEs to remain elevated despite the weaker print as the carry profile for August and September remains extremely positive.”
  • “The July increases in the headline Consumer Price Index and the core CPI were comparatively tame considering what we’ve seen the past few months as the low bar of year-ago comparisons drops out,” Greg McBride, chief financial analyst at Bankrate.com, wrote in a note. “Even though the Federal Reserve’s preferred inflation metric is not the Consumer Price Index, don’t expect today’s numbers to quiet the calls for the Fed to dial back crisis-era actions for fear of stoking further price increases. The ‘transitory or sustained’ debate will nonetheless continue.”

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