Treasuries Skyrocket Following Tamer Than Expected Inflation Data

Treasuries skyrocketed during trading on Thursday in reaction to a report showing a bigger than expected slowdown in U.S. consumer price growth.

Bond prices moved sharply higher early in the session and remained firmly positive throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, plunged 32.2 basis points to 3.829 percent.

With the steep drop on the day, the ten-year yield ended the session at its lowest closing level in over a month.

The surge by treasuries came following the release of a report from the Labor Department showing a smaller than expected monthly increase in consumer prices as well as a bigger than expected slowdown in the annual rate of price growth.

The Labor Department said its consumer price index rose by 0.4 percent in October, matching the increase seen in September. Economists had expected consumer prices to climb by 0.6 percent.

The annual rate of growth in consumer prices also slowed to 7.7 percent in October from 8.2 percent in September. The year-over-year increase was the smallest since January and came in below estimates for an 8.0 percent jump.

The report also showed core consumer prices, which exclude food and energy prices, edged up by 0.3 percent in October after advancing by 0.6 percent in September. Economists had expected core prices to rise by 0.5 percent.

The annual rate of growth in core prices also slowed to 6.3 percent in October from 6.6 percent in September, coming in below estimates for 6.5 percent growth.

The data suggests the Federal Reserve’s efforts to contain inflation are having an effect, reinforcing recent optimism the central bank will slow the pace of interest rate hikes as early as next month.

“Evidence is accumulating that inflation has peaked and is now falling again,” said Dr. Christoph Balz and Bernd Weidensteiner, senior economists at Commerzbank. “The Fed’s next rate hike is therefore likely to be smaller.”

Following the inflation data, CME Group’s FedWatch Tool is currently indicating an 85.4 percent chance of a 50 basis point rate hike next month and a 14.6 percent chance of another 75 basis point rate hike.

A separate report released by the Labor Department showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended November 5th.

Trading on Friday may be relatively subdued following today’s slew of activity, although traders are still likely to keep an eye on a report on consumer sentiment.

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