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Treasuries Show Notable Turnaround After Seeing Early Weakness


Treasuries showed a notable turnaround over the course of the trading session on Wednesday, recovering from an early move to the downside.

Bond prices climbed well off their early lows, ending the day firmly positive. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5.4 basis points to 2.904 percent after reaching a high of 3.071 percent.

Treasuries initially came under pressure after the Labor Department released a report showing a bigger than expected increase in consumer prices in the month of June.

The Labor Department said its consumer price index shot up by 1.3 percent in June after jumping by 1.0 percent in May. Economists had expected consumer prices to leap by 1.1 percent.

With the bigger than expected monthly surge, the annual rate of consumer price growth accelerated to 9.1 percent in June, reflecting the biggest increase since November 1981.

Economists had expected the annual rate of consumer price growth to accelerate to 8.8 percent in June from 8.6 percent in May.

Excluding increases in prices for food and energy, core consumer prices advanced by 0.7 percent in June after climbing by 0.6 percent in May. Core prices were expected to rise by another 0.6 percent.

While the annual rate of core consumer price growth slowed to 5.9 percent in June from 6.0 percent in May, the rate of growth was expected to decelerate to 5.7 percent.

The bigger than expected jump in consumer prices has solidified expectations the Federal Reserve will raise interest rates by 75 basis points later this month and increases the likelihood of another 75 basis point rate hike in September.

Traders continue to express concerns the Fed’s aggressive fight to contain elevated inflation will inadvertently push the economy into a recession, increasing the appeal of safe havens like bonds.

Treasuries remained positive after the Treasury Department revealed this month’s auction of $19 billion worth of thirty-year bonds attracted above average demand.

Data on producer price inflation is likely to attract attention on Thursday along with the latest weekly jobless claims report.

Fed's Beige Book Notes Modest Economic Growth, Substantial Inflation

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