U.S. Treasury yields inch higher before March inflation data

U.S. Treasury yields were tilted higher in early Tuesday trade before the widely awaited consumer price index data for March that could add fuel to bond investors’ fears of a surge in inflation.

What are Treasurys doing?

The 10-year Treasury note yield

was at 1.681%, up from 1.675% at the end of Monday, while the 2-year note

was steady at 0.173%. The 30-year bond yield

edged 0.4 basis point up to 2.349%.

What’s driving Treasurys?

The bond market is bracing for a blockbuster rise in the U.S. consumer price index in March, with analysts polled by MarketWatch forecasting an 0.5% monthly increase. But the core gauge that strips out for energy and food prices was penciled to come in at a less impressive 0.2% increase. The annual headline CPI is expected to rise to 2.5% from 1.7% as the slump in inflation a year ago from the pandemic drops out of the calculation.

Long-dated Treasurys have taken a beating throughout this year in anticipation of rising inflation, unleashed by the reopening of the U.S. economy. Still, analysts have cautioned March’s inflation reading may not tell much about the path of prices as yearly inflation measures will start to phase out the weak readings during last March when the pandemic’s trajectory started to pick up in the U.S.

Federal Reserve Bank of New York will later release its schedule for bond-buying over the next few weeks. This will draw attention after New York Fed official Lorie Logan suggested the central bank will start making tweaks to the amount of its asset purchases.

Some members of the Fed’s rate-setting committee are set to speak on Tuesday, including Philadelphia Fed President Patrick Harker and San Francisco Fed President Mary Daly.

What did market participants say?

“Last week’s larger than anticipated jump in U.S. producer price inflation to a 10-year high should have provided a warning shot, so the market’s immediate reaction to today’s U.S. CPI may be less impressive than a jump to 2.5% YoY (consensus) would suggest,” said Antoine Bouvet, a rates strategist for ING.

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