Bond Report: Treasury yields higher after U.S. consumer price index rises to 31-year high

Treasury yields were higher early Wednesday after data showed U.S. consumer price inflation rose on a year-over-year basis to 6.2% in October, the highest rate since November 1990.

What are yields doing?

The 10-year Treasury rate

was at 1.474%, up from 1.431% at 3 p.m. ET on Tuesday.

The 2-year Treasury note

yields 0.499%, up from 0.409% a day ago.

The 30-year Treasury bond rate

was marginally higher at 1.821%, rising from 1.820% on Tuesday.

What’s driving the market?

The cost of living rose sharply again in October as Americans paid more for staples such as gas and groceries, pushing the year-over-year headline rate of inflation to a nearly 31-year high.

The pace of inflation over the past year rose to 6.2% in October from 5.4% in the prior month. That’s more than double the Federal Reserve’s 2% target.

The CPI update comes a day after news of higher U.S. wholesale prices. Meanwhile, in data from overseas, China’s factory gate prices rose by a record 13.5% in October from a year earlier due to higher energy costs, representing the highest level since 1996. 

Fixed-income markets have been whipped around in recent trade, with moves in yields dictated less by fundamental factors such as economic data and more by positioning as the Federal Reserve announced it would begin withdrawing policy measures that were introduced last year to combat the impact of the coronavirus pandemic on the economy.

The Fed, at the conclusion of its policy gathering on Nov. 3, pledged to be patient about normalizing interest rates, which has helped to mitigate some of the upward pressure on yields for government debt, but further signs of persistent inflation could renew concerns.

In other U.S. data releases Wednesday, the number of people who applied for unemployment benefits in early November slid to another pandemic low, as businesses frantically sought to beef up staff and avoid layoffs during the biggest labor shortage in decades.

New filings for jobless benefitsdropped by 4,000 to 267,000 in the seven days that ended Nov. 6, the government said Wednesday.  Economists polled by The Wall Street Journal had estimated new claims would total a seasonally adjusted 265,000. The data was published a day earlier than usual given Thursday is Veterans Day, a U.S. federal holiday.

Read: Is the Stock Market Open Today? Here are the Hours for Veterans Day 2020.

A report on wholesale inventories is due at 10 a.m. Investors will also be watching for a $25 billion auction of 30-year bonds at 1 p.m., after Tuesday’s $39 billion sale in 10-year Treasury notes was described as “soft” by BMO Capital Markets strategist Ben Jeffery.

What analysts are saying

“The biggest concern for the Fed should be signs that longer-lasting cyclical inflation pressures are continuing to build rapidly,” said Andrew Hunter, senior U.S. economist at Capital Economics. “The bottom line is that, while it remains difficult to predict how far or for how long the various `transitory’ factors will boost inflation, there is increasing evidence that inflationary pressures are broadening out.” 

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