Bond Report: 10- and 30-year Treasury yields fall to lowest in over a week after `decent’ $22 billion bond auction, scant 0.2% rise in wholesale prices

Yields on 10- and 30-year Treasurys fell to their lowest levels in more than a week on Thursday, following a solid $22 billion auction of 30-year bonds and data showing U.S. wholesale prices rose just 0.2% in December.

BMO Capital Markets strategist Ben Jeffery said the bond sale produced a “decent outcome.” Meanwhile, Federal Reserve Gov. Lael Brainard testified that lowering inflation will be the central bank’s most important task for the foreseeable future, while other data showed U.S. weekly jobless claims jumped to the highest since mid-November.

What are yields doing?

The 10-year Treasury note TMUBMUSD10Y, 1.694% yield declined 2 basis points to 1.708% from 1.724% on Wednesday at 3 p.m. Eastern Time. It’s the lowest level since Jan. 5, based on 3 p.m. levels, according to Dow Jones Market Data.
The 30-year Treasury bond TMUBMUSD30Y, 2.034% yield fell 1.8 basis points to 2.053%, versus 2.071% on Wednesday afternoon. That’s the lowest since Jan. 3.
The 2-year Treasury not eBX:TMUBMUSD02Y rate declined less than 1 basis point to 0.897% from 0.905% a day ago. The yield is down two of the past three trading days.

What’s driving the market?

Yields fell on Thursday, in a somewhat counterintuitive rally in Treasurys, even as investors brace for a period of higher-than-usual inflation and a Federal Reserve that wants to tighten monetary policy to combat it.

See: Markets are in ‘wonderland’ when it comes to inflation and the Fed — and that’s sinking the U.S. dollar

During her U.S. Senate confirmation hearing to take the Federal Reserve’s No. 2 spot, Brainard said “inflation is too high, and working people around the country are concerned about how far their paychecks will go.

“Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone,” she said.

Read: Lael Brainard Says Inflation Is ‘Too High.’ The Fed Will Work to Bring It Down.

Data released Thursday showed U.S. wholesale prices rose a scant 0.2% in December, to mark the smallest increase in 13 months. The increase in the producer-price index fell below the 0.4% forecast of economists polled by The Wall Street Journal. Meanwhile, the advance in wholesale prices over the past year slipped to 9.7% from 9.8% in the prior month. It was the first decline in the yearly rate since early in the pandemic.

The PPI report came just a day after the consumer-price index for December showed the headline, year-over-year inflation rate rose to an almost 40-year high of 7%, indicating higher prices are likely to persist into 2022.

In other U.S. data, initial jobless claims rose by 23,000 to 230,000 for the week ended Jan. 8, the highest since mid-November. Economists polled by The Wall Street Journal had estimated new claims would slip to 200,000. Though jobless claims were higher than estimates, they still pointed to a tight jobs market.

What analysts are saying

Even though PPI rose by less than expected, “we believe investors have reason to remain hyper-focused on factors likely to keep inflation elevated in the months ahead,” said AXS Investments chief executive Greg Bassuk.

Although consumer-price data “briefly satisfied investor hopes on Wednesday that inflationary pressures might become more tenable, we caution investors that one month’s data is not a market cycle, and a premature conclusion on inflation’s trajectory based on one month’s reading could lead to misalignment in investor portfolios,” Bassuk wrote in an email.

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