U.S. Government Bonds Gain on Softer Inflation Data
By Daniel Kruger
U.S. government bond prices rose Tuesday after data showed the
pace of inflation slowed and average weekly earnings decreased in
The yield on the benchmark 10-year Treasury note fell to a
recent 1.835%, according to Tradeweb, from 1.846% Monday.
Yields, which fall when bond prices climb, declined after the
Labor Department said Tuesday that the consumer price index, which
measures the costs of goods ranging from fish tanks to paint
brushes, rose a seasonally adjusted 0.2% in December from the month
before, down from a 0.3% increase in November.
The lack of consistent upward pressure on prices is good for
government bonds, because muted inflation keeps interest rates
stable and maintains the purchasing power of their fixed interest
and principal payments. The data offers a sign bonds could continue
to hold value even as worries about the economy fade.
The bond market's forecast for the average rise in consumer
prices for the next 10 years, known as the break-even rate of
inflation, fell modestly to roughly 1.8%. That is based on the
difference between yields on Treasury Inflation-Protected
Securities and government debt maturing in a decade.
That measure rose in recent months, along with other economic
indicators, as the economy regained its footing. Investor
expectations for inflation fell over the summer amid concerns that
the risks of a recession were rising as President Trump surprised
investors by raising tariffs against China and reports suggested
manufacturing output was decreasing.
The softer data "stuck a small pin into any sense of momentum
from the end of last year," said Jim Vogel, head of interest-rate
strategy at FHN Financial.
The softer inflation data could make it more likely that the Fed
holds rates steady or lowers them this year, analysts said.
Federal-funds futures, which investors use to bet on the pace of
central bank interest-rate policy, show about seven-in-eight
investors expect the Fed won't raise rates through June, little
changed from Monday.
The WSJ Dollar Index, which measures the U.S. currency against a
basket of 16 others, rose 0.1% to a recent 90.40.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
January 14, 2020 10:30 ET (15:30 GMT)
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