The 10-year U.S. Treasury yield held steady on Thursday around the highest levels in about 5 weeks as fretting about a rise in inflation in the aftermath of the COVID-19 pandemic persisted and investors awaited fresh economic reports for further signs of pricing pressures.
How are Treasurys performing?
Bond prices fall as yields rise.
What’s driving the fixed-income market?
A day after inflation fears sparked a rout in equity markets and delivered a jolt higher to Treasury yields, investors are watching for more measures of pricing pressures emerging from the U.S. producer-price index to be released at 8:30 a.m. Eastern Time.
April’s PPI consensus forecast is for a monthly headline rise of 0.3%, compared with 1% rise in March, according to Econoday. Core PPI, excluding volatile food and energy, is estimated to rise 0.4%, after a 0.6% in the prior month.
A hotter-than-expected read in PPI may suggest that inflation may be more of a problem than the Federal Reserve has been articulating.
On Wednesday, Fed No. 2 Richard Clarida, answering questions during a conference hosted by journalists, said that the surge in consumer prices represented in the April CPI reading surprised him. However, he said that more data might be needed.
Pricing pressures have been a deep-seated worry for investors because rising inflation can erode a bond’s fixed value and a jump in inflation may also prompt the U.S. central bank to raise its policy interest rates much sooner than projections for 2023 or 2024.
A number of Fed officials, so far, have said that rising inflation will be the result of so-called base effects, after lockdowns and stay-at-home protocols to limit the spread of COVID crushed demand for goods and services and reduced inflation a year ago.
Effective vaccines have helped to spur a strong economic recovery and demand may surge in tandem, outstripping supply and driving prices higher.
Looking ahead, investors will also be watching for the latest weekly U.S. jobless benefit claims report, which will be published at the same time as the PPI. Economists surveyed by Econoday are expecting 475,000 new applications for unemployment insurance for the week ended May 8, continuing a trend of a slowly improving labor market.
Fixed income investors also await a speech on the economic outlook from Fed Gov. Christopher Wallerat 1 p.m. at the Global Interdependence Centre’s 39th Annual Monetary and Trade Conference. Later
Before that Richmond Fed President Thomas Barkin will speak at 10 a.m. St. Louis Fed President James Bullard will talk to the Greater Memphis Chamber of Commerce at 4 p.m.
After a sale of $41 billion in 10-year Treasurys went well, bond investors are awaiting a $27 billion sale of 30-year Treasurys at 1 p.m.
What are strategists saying?
“The analysis that drove conservative CPI estimates for April is mirrored in forecasts for PPI to be released this morning.,” wrote Jim Vogel, executive v.p. at FHN Financial, in a daily note.
“Result: Simple comparisons of the actual numbers vs expectations could offer the same picture as CPI, subjecting rates to another day of volatility and negative sentiment. Equities got off to another rocky start this morning, leaving yields roughly in place from yesterday even as US tech futures mount a small comeback,” he said.