Treasury yields give up most of their gains after core inflation rises

US Treasury yields lost most of their gains from Wednesday morning, after the Labor Department said core inflation continued to rise in July, although less than expected.

The benchmark 10-year Treasury bill yield slipped 1 basis point to 1.329% at 4:00 p.m. ET. The yield on 30-year Treasury bonds rose almost a basis point to 1.993%. Yields move in the opposite direction to prices. One basis point is equal to 0.01%.

The consumer price index rose 5.4% in July from a year earlier and 0.5% on a monthly basis, the Labor Department reported earlier today. Core inflation, which excludes oil and food prices, rose 0.3% in July, falling short of economists’ expectations of a 0.4% increase and less than the increase of 0, 9% of June. Core inflation is considered a more reliable measure because energy and food prices can be very volatile.

“Fed officials will no doubt see these numbers as validating their claims that much of the previous surge in core inflation was transient, but there were also signs in the July report that pressure was on more sustainable prices continue to intensify, ”said Andrew Hunter, an economist at Capital Economics.

For example, bar and restaurant prices continued to rise, indicating labor shortages and rising wages, and rent prices continued to rise.

“Overall, the July data suggests that the initial surge in higher inflation is fading now, but it is still far too early to rule out the risks of a more prolonged period of higher inflation over the years. next few years, ”Hunter added.

Treasury prices continued to rise and yields fell further after the 10-year bond auction showed strong demand. Comments by Dallas Fed Chairman Robert Kaplan on CNBC that the Fed is expected to start removing stimulus in October also helped lower yields.

Atlanta Fed Chairman Raphael Bostic and Richmond Fed Chairman Thomas Barkin said on Monday that they believed inflation had reached the long-term inflation threshold of 2% of the central bank, according to a Reuters report.

Sam Zief, global head of currency strategy at JPMorgan Private Bank, told CNBC’s “Street Signs Europe” on Wednesday that he believed investors and the Fed saw rising inflation as transitory.

Zief said inflation appeared to be pushed up in the near term by reopening sectors as part of the economic recovery from the pandemic. He therefore believed that investors would likely be convinced that the “Fed will not overreact” if price pressures in these sectors began to ease.

“If we start to see these inflationary pressures spreading beyond these sectors, especially maybe in wages, then I think the Fed is starting to recover and that’s the kind of thing that could shake things up. the Fed even faster, ”Zief added.

– CNBC’s Pippa Stevens contributed to this report.