Treasuries See Further Downside Following Inflation Data


Treasuries extended a recent downward trend during trading on Thursday, with inflation concerns continuing to weigh on the bond market.

Bond prices regained ground after coming under pressure in early trading but remained in negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose 3.4 basis points to 3.843 percent.

With the continued increase on the day, the ten-year yield reached its highest closing level in well over a month.

The weakness among treasuries came following the release of a report showing a bigger than expected increase in producer prices.

The Labor Department said its producer price index for final demand climbed by 0.7 percent in January after edging down by a revised 0.2 percent in December.

Economists had expected producer prices to increase by 0.4 percent compared to the 0.5 percent drop originally reported for the previous month.

While the report also showed the annual rate of producer price growth slowed to 6.0 percent in January from 6.5 percent in December, the year-over-year growth was expected to slow to 5.4 percent.

Following the consumer price inflation and retail sales data released earlier this week, the report added to worries about the outlook for interest rates.

Traders have recently expressed concerns the Federal Reserve will raise rates higher than currently anticipated in an effort to combat inflation.

“The larger than expected increase to producer prices is unwelcome news to the Fed and reinforce the view that further policy tightening is needed to tame inflation,” said Matthew Martin, U.S. Economist at Oxford Economics.

A separate Labor Department report showed first-time claims for U.S. unemployment benefits unexpectedly edged slightly lower in the week ended February 11th.

The report said initial jobless claims slipped to 194,000, a decrease of 1,000 from the previous week’s revised level of 195,000.

Economists had expected jobless claims to inch up to 200,000 from the 196,000 originally reported for the previous week.

Michael Pearce, Lead US Economist at Oxford Economics, said the current level of jobless claims suggests labor market conditions remain “exceptionally tight.”

“That is consistent with most other indicators which suggest that the labor market is still carrying plenty of momentum, leaving the Fed on track to raise rates at its March meeting, and probably at the May meeting too,” Pearce added.

A report on U.S. import and export prices may attract attention on Friday along with a reading on leading U.S. economic indicators.

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