U.S. Government Bonds Decline as Inflation Data Looms
January 08 2018 - 12:45PM
Dow Jones News
By Daniel Kruger
U.S. government bonds weakened Monday, with investors becoming
increasingly attuned to the risk that inflation is preparing to
stage a comeback.
The benchmark Treasury 10-year note yield rose to 2.487%,
according to Tradeweb, up from 2.476% Friday. Yields rise as bond
prices fall.
With this week's calender light on economic data, some investors
were looking ahead to the Labor Department's scheduled release of
the consumer-price index Friday, which offers a reading on December
inflation. Inflation poses a threat to long-term government bonds
because it erodes the purchasing power of their fixed payments.
The CPI increased 2.2% in November from a year earlier. However,
the Fed's preferred inflation gauge, the price index for
personal-consumption expenditures, rose just 1.8% on a headline
basis and 1.5% when excluding volatile food and energy costs. The
Fed measure tends to run about 0.3 percentage point below the CPI,
according to Barclays PLC.
The economy has grown at a pace exceeding 3% in the second and
third quarters, while the U.S. has added 2 million or more jobs for
seven consecutive years, pushing the unemployment rate down to 4.1%
for three consecutive months. Many investors and economists expect
wage growth to start picking up as available workers become more
scarce, which they view as a key channel for price increases.
Yet average hourly earnings rose 2.5% in December from a year
earlier, a similar, modest pace as maintained since early 2015,
according to Labor Department data released Jan. 5. Wage gains look
a bit better on a weekly basis, because Americans are working more
hours.
Some investors, who have been betting that bond yields will
rise, have been "disappointed by the wage data," they are "looking
for an inflationary impulse," said Christopher Sullivan, a bond
manager for the United Nations Federal Credit Union.
With the jobless rate so low, "one should expect the forces
around labor that influence wages" will soon produce clearer signs
of rising prices, he said.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
January 08, 2018 12:30 ET (17:30 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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