Inflation Data Push Treasury Yields Closer Together

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The difference between yields on short- and long-term Treasuries narrows after reports on consumer prices.

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Yields on long-term Treasuries, which rise when bond prices plummet, retraced an initial climb and eased after Labor Department data showed the US consumer-price index in September at 0.4 on a seasonally-adjusted basis. % rose, up from 0.3% in August. Economists polled by the Wall Street Journal had expected 0.3%.

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Returns on short-term treasuries, which are particularly sensitive to changes in monetary policy, climbed after the report. The yield on the two-year Treasury rose to 0.368% from 0.348% on Tuesday. This is the highest level since the end of March 2020.

The narrowing of the gap between short- and long-term yields gives investors hope that the Fed may raise rates faster than previously, which could further slow growth in the future. Central bank officials have said the recent jump in inflation is temporary and expected to ease in the coming years, especially due to less supply-chain bottlenecks.

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“There is a lot of sensitivity now to inflation data,” said Gennady Goldberg, senior US rates strategist at TD Securities. “The market is getting more and more concerned that we are facing an inflationary shock.”

A recent wave of bond sales has brought US Treasury yields closer to their March highs, justifying forecasters who argued this summer’s rally will be tarnished by higher inflation and tighter monetary policy. Will go Analysts and investors say Treasury yields could rise from current levels, with some expecting the 10-year yield to end this year at 2%.

Minutes of the September 21-22 Fed meeting showed greater consensus on how to begin scaling back the central bank’s $120 billion in monthly purchases of Treasury and mortgage securities, amid signs that higher inflation and stronger demand May demand tougher monetary policy next year.

According to a report on Wednesday, Deutsche Bank analysts now expect the Fed to start raising short-term interest rates in December 2022, rather than the third quarter of 2023. The bank predicts that the central bank will gradually maintain momentum and the federal-funds rate will reach 1.9% by the end of 2024.

Fed officials last month planned to reduce their bond-buying stimulus program in November and completely phase out asset purchases by the middle of next year.

Mr. Goldberg and his team don’t think the Fed will raise rates earlier than expected to cushion supply-chain-driven inflation and are recommending customers buy nominal five-year Treasuries, which will be subject to changes in monetary policy. are sensitive.

“The market is getting worried that the Fed is going to blink on inflation already,” he said. “We don’t think they’ll increase pre-emptively, so we’re pushing against market pricing.”

improvement and amplification

The gap between yields on short- and long-term Treasury yields narrowed after new data showed consumer prices edged up slightly in September. An earlier version of this article incorrectly stated August. (corrected on 13 October)

Sebastian Pellejero [email protected] . Feather

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