U.S. Government Bonds Rise After Soft Inflation, Fed Rate Increase
December 13 2017 - 4:13PM
Dow Jones News
By Akane Otani
U.S. government bond prices rose Wednesday after data showed
inflation pressures remain muted and the Federal Reserve raised
short-term interest rates as expected.
The yield on the benchmark 10-year U.S. Treasury note settled at
2.353%, compared with 2.403% Tuesday.
Yields, which fall as bond prices rise, slipped early Wednesday
after Labor Department data showed continued signs of weakness in
inflation.
The consumer-price index, which measures what Americans pay for
everything from coffee to prescription drugs, rose 0.4% in
November, in line with what economists surveyed by The Wall Street
Journal had expected.
But core prices, which exclude the more volatile categories of
food and energy, rose just 0.1% in November, missing economists'
estimates for a 0.2% increase. That suggested inflation pressures
remain muted on the whole, some analysts said, helping push
Treasury yields lower.
Inflation tends to weaken demand for government bonds, since it
chips away at the purchasing power of their fixed returns.
"Any time you have core inflation come in softer than expected,
it invites a little bit of uncertainty as to how aggressively the
Fed can move," said Joe Tanious, investment strategist at Bessemer
Trust.
Bond yields then extended gains after the Fed said it would
raise its benchmark federal-funds rate by a quarter percentage
point.
Investors and traders had widely expected the central bank to
announce an interest-rate increase. Something that did surprise
some analysts: the fact that two Fed committee members voted
against a December rate increase.
The move represented the first double dissent at a 2017 Fed
meeting, and could foreshadow more disagreement in 2018 over the
pace of rate increases given a streak of soft inflation data, some
analysts said.
"I'm not sure what else they needed to see for a December hike,"
said JJ Kinahan, chief market strategist at TD Ameritrade. With
measures including household spending, business investment and the
unemployment rate pointing to the U.S. economy continuing to
strengthen, Mr. Kinahan expects wage growth -- something that has
been muted this year -- to pick up in 2018.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
December 13, 2017 15:58 ET (20:58 GMT)
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