BCS Barclays PLC

By Daniel Kruger 

U.S. government bonds weakened Monday, with investors becoming increasingly attuned to the risk posed by a possible rise in inflation.

The benchmark Treasury 10-year note yield rose for a third consecutive trading session to 2.480%, up from 2.476% Friday. Yields rise as bond prices fall.

With this week's calendar 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 the value of 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," and 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 18:11 ET (23:11 GMT)

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