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Treasury yields were mostly lower Tuesday morning despite data showing that U.S. inflation leaped to 8.5% in March.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.712%
traded at 2.713%, down from 2.779% at 3 p.m. Eastern Monday. Monday’s level was its highest since Jan. 18, 2019, according to Dow Jones Market Data. -
The 2-year Treasury note yield
TMUBMUSD02Y,
2.430%
was 2.426% versus 2.506% Monday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.776%
slipped to 2.773% from 2.82% late Monday, which was its highest since May 21, 2019.
What’s driving the market?
The rate of U.S. inflation in the past year moved up to 8.5% in March from 7.9%, topping 8% for the first time in more than four decades as higher gas prices slammed consumers, according to a government report Tuesday.
On a monthly basis, the consumer price index jumped 1.2%, driven by the higher cost of gasoline, food and housing. It was the largest monthly gain since Hurricane Katrina in 2005, and exceeded Wall Street’s forecast of a 1.1% advance.
One potential sign inflation might be peaking, however, was the smallest increase in six months in the so-called core rate of inflation that strips out food and energy. It rose just 0.3% last month.
Earlier Tuesday, the National Federation of Independent Business said its Small Business Optimism Index decreased to 93.2 in March from 95.7 in February, registering the third decline in as many months and falling to the lowest level since April 2020. Economists polled by the Wall Street Journal had expected the index to fall slightly to 95.3.
Still ahead for midday is a scheduled appearance by Federal Reserve Gov. Lael Brainard, who is set to speak at a Wall Street Journal event. Last week, Brainard called for an rapid wind down of the Fed’s balance sheet — which contributed to a jump in yields, particularly for longer dated maturities, and rattled stock-market investors.
What do analysts say?
“The surge in energy prices helped drive headline CPI inflation up to a new 40-year high of 8.5% in March but, with base effects set to become much more favourable and signs that monthly gains in core prices are moderating, we expect that to mark the peak,” said Andrew Hunter, senior U.S. economist at Capital Economics.
“With Fed officials continuing to sound more hawkish by the day, the March CPI data won’t change their plans to up the pace of rate hikes to 50bp per meeting from next month,” Hunter wrote in a note. “Even so, it does support our view that, having been slow to realise that the initial surge wasn’t transitory, Fed officials are now being a bit too pessimistic about how quickly it will drop back.”
