August Consumer Price Index rose 0.4% after July’s 0.2% rise
Rate future pricing reflects bets on three straight Fed rate cuts
NEW YORK, Sept 11 (Reuters) – The yield on the benchmark 10-year Treasury note dipped below 4% to a five-month low on Thursday after consumer prices data that leaned warm but was still supportive for the bond market and unlikely to deter the Federal Reserve from easing next week. The Labor Department’s August Consumer Price Index rose 0.4% after July’s 0.2% rise. That was just above the 0.3% increase expected, while year-on-year CPI rose 2.9% as expected, a bit hotter than July’s 2.7% rise.
The market gained confidence from Wednesday’s fall in producer prices that inflation will not be enough of an issue to keep the Fed on hold after next week’s meeting.
On the other side of the Fed’s dual mandate, a weakening labor market is seen as smoothing the way for at least a 25 basis point cut. That was reinforced by initial jobless claims that were also released on Thursday, showing 263,000 people filed for unemployment insurance last week, much more than expected and the revised 236,000 last week.
“The slightly elevated CPI and core CPI being in line with expectations reinforces the notion that the Fed is going to cut rates next week,” said Oliver Pursche, senior vice president, advisor, at Wealthspire Advisors in Westport, Connecticut.
“The higher unemployment filings suggest there’s a possibility it could be 50 basis points as opposed to 25 … although I think that’s still only a remote possibility. But it certainly seems like ‘bad news is good news’ is back,” Pursche said.
Rate futures pricing now reflects bets on three straight quarter-point Fed rate cuts, one at each meeting left this year, starting with this Tuesday and Wednesday’s.
The yield on the benchmark U.S. 10-year Treasury note fell to 3.996%, its lowest since April 7, and was last off 1 basis point at 4.022%.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 2.9 basis points to 3.504%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, steepened to a positive 51.7 basis points.
The yield on the 30-year bond was unchanged at 4.677%, with the market now waiting to see how the Treasury’s auction of $22 billion goes later on Thursday, after strong sales of three- and 10-year notes earlier this week.
(Reporting by Alden Bentley; Editing by Will Dunham)
