Treasury yields fell again on Friday morning, with investors ignoring the 5% annual jump in inflation reported in the previous session and appearing to accept the Federal Reserve’s argument that the price increases will be temporary.
The benchmark 10-year Treasury bill yield slipped more than a basis point to 1.447% shortly after 7 a.m. ET. The yield on 30-year Treasuries fell by a similar amount to 2.139%. Yields move in the opposite direction to prices. (The basis points are equal to 0.01 percentage point).
The basic consumer price index rose 5% in May on an annual basis, the highest since the summer of 2008 and above the 4.7% increase expected by economists polled by Dow Jones.
Excluding food and energy, the core CPI increased 3.8% year over year, the highest pace since 1992. One-third of the increase was attributed a sharp rise of 7.3% in the prices of used cars and trucks.
Despite this, yields fell significantly from March, when the 10yr traded above 1.7% as the economic reopening gained momentum. The benchmark yield was trading above 1.6% just a week ago.
Nannette Hechler Fayd’Herbe, chief investment officer at Credit Suisse International Wealth Management, said the recent decline in longer-term Treasury yields, despite higher inflation, could be explained by “economic growth momentum. which slows down “.
She said the markets would soon enter another phase, driven by the guidance central banks will give on monetary policy. The next Federal Reserve policy meeting on June 15-16 could “kick the markets into (…) a second wave of interest rate hikes, as expectations for future monetary policy will also adjust. “she said. Hechler Fayd’Herbe expects a resurgence of higher yields on longer-term Treasuries in the second half of the year.
The University of Michigan is expected to release national data for June on economic indicators at 10 a.m. ET on Friday, including consumer sentiment and inflation expectations.
No auction is scheduled for Friday.
– CNBC’s Patti Domm contributed to this report.