Yields dip after producer prices report, focus turns to CPI
2024.08.13 10:12
By Alden Bentley
NEW YORK (Reuters) – U.S. Treasury yields slipped on Tuesday after the release of tame producer price data that looks unlikely to divert the Federal Reserve from an easing glide path and should raise hopes that Wednesday’s consumer prices report will confirm inflation is under control.
The July Producer Price Index increased a less-than-expected 0.1%, after rising 0.2% in June, the Labor Department said, as a rise in the cost of goods was tempered by cheaper services. In the 12 months through July, the PPI increased 2.2%, backing down from a 2.7% rise in June.
Slowing inflation and a cooling labor market have led financial markets to anticipate that the Federal Reserve will start its easing cycle in September. With inflation behaving and the unemployment rate surging to near a three-year high of 4.3% in July, an interest rate cut of 50 basis points from its current 5.25% to 5.5% range cannot be ruled out.
Bond yields fell sharply to their lowest in more than a year in the wake of the surprising jump in the unemployment rate and weaker than expected payrolls increase reported last Friday.
They have recovered somewhat but remain under pressure amid concerns that complacency over a soft landing is misplaced and that a recession could be in store.
The yield on the benchmark U.S. 10-year note was down 3.4 basis points at 3.875%, about 2 bps below where it stood before PPI. The yield, which typically moves in step with interest rate expectations, was down 4 bps from late Monday at 3.9751%, about 3 bps of which came after the report.
The 30-year bond yield fell 2 basis points from late the previous session to 4.1784%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and , seen as an indicator of economic expectations, was at a negative 10.2 basis points, slightly steeper, or less inverted than -11.7 bps late Monday.
Hopes for an aggressive 50 bps easing in September briefly disinverted the 2s/10s curve to 1.5 bps last week, the first time it had been in a normal upward sloping configuration since July 2022.
