Rising inflation data increases bond yields in the United States

Yields, which rise as bond prices fall, rose after the Labor Department said the consumer price index, closely watched, had risen 0.1% in June compared with the month before. previous year, while base prices had increased by 0.3%. Both readings were higher than the estimates of economists surveyed by the Wall Street Journal. Yields then rose again after a $ 16 billion auction of 30-year Treasuries drew a moderate demand from investors.

Investors tend to sell their treasury bills in response to robust inflation data as inflation erodes the purchasing power of fixed bond payments.

Investors and analysts were particularly interested in Thursday's inflation report, released a day after Federal Reserve Chairman Jerome Powell announced forcefully that the central bank was ready to lower interest rates later this month, partly to boost inflation.

Futures on federal funds, which investors used to bet on the direction of interest rates, suggested that the Fed could reduce the federal funds rate by 0.50 percentage points, instead of just 0, 25 percentage point, at its next meeting, rising to 29% after comments from Mr. Powell Wednesday 3% a day earlier, according to data from the CME group. The probability declined slightly to 21% on Thursday after the report on inflation.

"A good impression of the consumer price index is not enough to cut the table," said Blake Gwinn, rate strategist at NatWest Markets. Nevertheless, the odds of a 0.50 percentage point reduction have decreased "because we got some reliable data impressions".

The Consumer Price Index report has also pushed the 10-year break-even point – a measure of market-based annual inflation expectations for the next decade, based on the additional yield that Canadian retailers expect. investors ask to hold for regular treasury purposes on 10-year treasuries protected from inflation. – At 1.76% Thursday, up 1.73% Wednesday, according to Refinitiv.

Signs that the Fed will try to preserve economic expansion by lowering interest rates have boosted corporate bonds in recent weeks.

The average additional yield, or spread, that investors are demanding to hold US corporate bonds of good quality versus treasury bills is set Wednesday at 1.13 percentage points, according to Bloomberg Barclays data. This was down from the recent peak of 1.30 percentage points on 3 June and near the lows of 2019 (1.09 percentage points in April).

Write to Sam Goldfarb at [email protected]