U.S. Government Bonds Fall on Inflation Signs
December 12 2017 - 05:11PM
Dow Jones News
By Daniel Kruger
U.S. government bond prices fell Tuesday after signs that solid
economic growth may be starting to generate inflation.
The yield on the benchmark 10-year U.S. Treasury note yield rose
for a fourth consecutive session, settling at 2.403% from 2.387%
Monday. Bond yields rise as prices fall.
Yields climbed after a gauge of U.S. business prices showed
signs of inflation building within the economy. The producer-price
index for final demand, which measures changes in the prices that
U.S. companies receive for their goods and services, increased a
seasonally adjusted 3.1% in November from a year earlier, the Labor
Department said Tuesday. That is the biggest jump in nearly six
years.
Inflation is a threat to long-term government bond prices
because it erodes the purchasing power of the debt's fixed
payments. The Labor Department releases data on the consumer-price
index Wednesday, which economists expect to rise 0.4% in November
from a month earlier.
Bond yields have traded in a narrow range recently amid signs
inflation remains muted. The Federal Reserve's preferred inflation
gauge rose 1.6% in October from a year earlier, according to the
Commerce Department, and the annual inflation reading has remained
below the Fed's 2% target for the best part of 5 1/2 years.
Fed officials are likely to raise their benchmark short-term
rate Wednesday by a quarter-percentage point to a range between
1.25% and 1.5%. Investors are looking to see whether policy makers
raise their projections for three rate increases in 2018.
"We're going to see higher rates and a Fed that's a bit more
aggressive, " said Larry Milstein, managing director of government
and agency trading at R.W. Pressprich & Co.
Should policy makers signal a desire to raise rates a fourth
time in 2018, that could help push the 10-year yield above 2.42%,
which served as an upward barrier for several months, and propel
the yield into the 2.75%-3% range, he said.
(END) Dow Jones Newswires
December 12, 2017 16:56 ET (21:56 GMT)
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