Treasury yields trade mixed as traders await U.S. inflation data

Treasury yields trade mixed as traders await U.S. inflation data

Treasury yields traded mixed on Tuesday, as fixed-income traders returned from the three-day Columbus Day holiday weekend and attention turned to this week’s round of U.S. inflation data and minutes from the Federal Reserve.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.607%

    edged down to 1.601%, compared with 1.604% at 3 p.m. Eastern on Friday. Yields and debt prices move in opposite directions.

  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.357%

    rose to 0.338% from 0.318% Friday afternoon.

  • The 30-year Treasury bond yield
    TMUBMUSD30Y,
    2.128%

    declined to 2.130% from 2.161% on Friday.

What’s driving the market?

With the Treasury market closed Monday for the Columbus Day holiday, traders returned to focus their attention on the September reading of the U.S. consumer-price index, which is due Wednesday morning. Later that day, 2 p.m. Eastern Time, the Federal Reserve also will release the minutes from its Sept. 21-22 meeting, where the central bank signaled its intention to dial back some easy-money programs soon.

Rising commodity prices, led by oil and natural gas, have contributed to concerns about potential inflationary pressures, alongside widespread supply-chain bottlenecks, analysts said. The Fed is seen as likely to follow through on expectations it will announce its plan to begin tapering monthly asset purchases next month.

Indeed, the Fed’s No. 2, Vice Chairman Richard Clarida, on Tuesday said the “‘substantial further progress’ standard has more than been met with regard to our price-stability mandate and has all but been met with regard to our employment mandate,” speaking at the Institute of International Finance virtual annual meeting.

Clarida also said that he viewed evidence of elevated inflation as “largely transitory,” reiterating a refrain uttered by a number of Fed policy makers, even as Fed Chairman Jerome Powell has recently acknowledged the uncertain duration of increasing pricing pressures on the economy.

Clarida’s comments come as the International Monetary Fund, in its World Economic Outlook report released Tuesday, lowered its estimate of global growth to 5.9% this year, down one-tenth of a percent from July. It also said it sees slowing to 4.9% growth in 2022. For the U.S. the IMF cut its growth estimate for this year by 1% to 6%.

Meanwhile, the National Federation of Independent Business on Tuesday said its optimism index slipped one point to 99.1 in September, the lowest reading since March, as small-business owners remained frustrated by shortages of supplies and skilled labor.

Other data released Tuesday showed that U.S. job openings dropped to 10.4 million in August from 11.1 million previously.

Later in the day, The Treasury Department is set to auction 3-year notes
TMUBMUSD03Y,
0.623%
.

In overseas developments, news reports said China Evergrande Group, the troubled real-estate developer, missed a third round of bond coupon payments in three weeks, underlining worries about China’s highly leveraged property sector.

What are analysts saying?

“With investor anticipation continuing to build ahead of tomorrow’s CPI release from the U.S., yesterday saw yet another round of commodity price rises that’s making it increasingly difficult for central banks to argue that inflation is in fact proving transitory,” said Jim Reid, strategist at Deutsche Bank, in a note.

“You don’t have to be too old to remember that back in the summer, those making the transitory argument cited goods like lumber as an example of how prices would begin to fall back again as the economy reopened. But not only have commodity aggregates continued to hit fresh highs since then, but lumber (+5.49%) itself followed up last week’s gains to hit its highest level in 3 months,” he said.

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