Treasury prices fell, nudging yields higher, on Thursday, a day after fears sparked by a fresh round of tariffs from Trump administration had fueled buying in assets perceived as havens.
The two-year Treasury note yield TMUBMUSD02Y, +0.32% edged 1.2 basis points higher at 2.590%, retouching its loftiest rate since late July 2008, according to WSJ Market Data Group.
Investors homed in on a key report on inflation, which suggested price pressures were picking up throughout the economy. This is likely to keep the Federal Reserve on track to raise rates two more times this year. Inflation for June came in at a 0.1% increase, below the consensus estimate of 0.2% based on economists polled by MarketWatch. But on a year-over-year basis, consumer prices were climbing at an annual pace at 2.9%, a six-year high.
“The overall picture is one in which just about every facet of the economy is starting to generate price pressures. There will still be monthly fluctuations here, but by and large the distribution of price increases is more balanced than it has been in a long time. That’s good evidence that strong economic performance will over time push broad prices higher,” said Eric Winograd, senior economist for AB.
That report comes a day after the producer-price index, which measures prices that businesses receive for their goods and services, rose 0.3%, above the 0.2% expected from economists polled by MarketWatch.
Rising inflation can chip away a bond’s fixed value and provide some impetus for Fed policy makers to quicken their pace of rate increases. Both are factors that might drive debt prices lower and yields higher.
Separately, jobless claims for the period ending in July 7 fell by 18,000 to 214,000, below the MarketWatch forecast of 226,000.
Philadelphia Fed President Patrick Harker’s was set to take part in a discussion at an event in Idaho in the late morning, and the Treasury Department is slated to release its June figures on the federal budget for June at 2 p.m. Cleveland Fed President Loretta Mester said on Wednesday the economy was strong enough to handle two more rate hikes this year.
Meanwhile, bond traders await an auction of about $14 billion in 30-year paper set for $1 p.m., as a part of some $69 billion in government-bond sales slated for this week.
Concerns over trade tensions linger, however, and the flight to safety assets like government bonds has moderated, with global stocks, including the Dow Jones Industrial Average DJIA, +0.74% and the S&P 500 index SPX, +0.62% on pace to close higher Thursday.
Late Tuesday, the Trump administration said it would assess additional tariffs on $200 billion on a variety of Chinese goods, including bicycles, sound systems, refrigerators, pocketbooks, vacuum cleaners, cosmetics, tools and seafood.
Those tariffs follow $34 billion in duties of 25% enacted against Beijing and Washington last week, with China vowing to respond in kind to the latest $200 billion salvo.
Haven assets, including the dollar DXY, +0.02% have drawn bidding because markets fret that the trade clash between the U.S. and its partners across the world could hurt global economic expansion.
Many industry participants, however, hold out hope that trade disputes can be resolved amicably. Bloomberg reported that U.S. and Chinese officials are open to resuming high-level trade talks.