By Sunny Oh

November's CPI reading fell flat thanks to fall in oil prices

Treasury prices fell Wednesday, pushing yields modestly higher, after investors cut back buying of U.S. government paper as stocks rose and Italian debt surged on fading jitters around geopolitical and trade tensions.

The selloff follows the release of key inflation data that should still keep the Federal Reserve on track to hike in its upcoming December meeting.

The 10-year Treasury note yield was up 2.7 basis points to 2.908%, cobbling together its third straight session of while the 2-year note yield was flat at 2.774%. The 30-year bond yield was up 1.8 basis points to 3.147%. Bond prices move in the opposite direction of yields.

A Canadian judge granted bail to Huawei Technologies Co.'s chief financial officer Meng Wanzhou, who was arrested on Dec. 1 in Vancouver at the behest of the U.S. government, which alleges she lied to banks about ties between the China-based company and a company that did business in Iran, in violation of U.S. sanctions. Meng faces possible extradition to the U.S.

Wall Street rallied (http://www.marketwatch.com/story/dow-futures-up-over-200-points-as-trade-talk-optimism-reboots-2018-12-12) and Asian equities ended higher on the news, sapping demand for Treasurys.

Meng's detention had drew speculation it would jeopardize trade talks between Washington and Beijing. President Donald Trump, in an interview with Reuters, said he would intervene (http://www.marketwatch.com/story/trump-says-hell-step-in-over-huawei-executive-if-needed-cites-progress-over-trade-2018-12-12) in the case if it would help smooth trade tensions.

Read: Will EU treat Italy more leniently as France's Macron risks breaching fiscal rules? (http://www.marketwatch.com/story/will-eu-treat-italy-more-leniently-as-frances-macron-risks-breaching-fiscal-rules-2018-12-11)

Adding to the upbeat tone for risk assets, prices for Italian government bonds climbed after a report by Bloomberg (https://www.bloombergquint.com/onweb/italy-to-propose-new-fiscal-targets-to-european-union-wednesday#gs.=5w3Qy0) said the Italian government could propose a 2019 budget with a deficit forecast of 2% of GDP to appease the European Commission, which had rejected Rome's initial budget draft. European Commission President Jean-Claude Juncker is set to meet Italian Prime Minister Giuseppe Conte on Wednesday.

The 10-year Italian government bond yield traded at 3.004%, after briefly falling below 3% for the first time since September. The spread between the benchmark Italian maturity and the 10-year German government bond yield narrowed by 16 basis points to 273 basis points, or 2.73 percentage points.

Also read: What Theresa May's leadership fight means for Brexit-wary investors (http://www.marketwatch.com/story/what-theresa-mays-leadership-fight-means-for-brexit-weary-investors-2018-12-12)

The U.S. consumer-price index for November was flat after an 0.3% increase in October (http://www.marketwatch.com/story/cheaper-gas-tamps-down-consumer-inflation-in-november-cpi-shows-2018-12-12), in line with forecasts from economists polled by MarketWatch, owing in part to the recent slump in the oil market, which pulled down gasoline prices. The core gauge, stripping out for volatile energy and food values, rose by 0.2% also in line with forecasts.

Oil slumped into a bear market last month after hitting a nearly four-year high in early October. The U.S. crude benchmark remains down more than 30% from its recent peak.

"Today's consumer price data for November support our views that inflation in the U.S. has peaked and that Treasurys will rally further next year," wrote Hubert de Barochez, markets economist at Capital Economics.

Still, many expect the Fed to push forward with its December hike against the clamoring of market participants who say the rise in borrowing costs will tighten financial conditions and bring a premature end to the U.S. economic expansion. The fed fund futures market, where traders can bet on the outlook for interest rates, shows a 80% probability of a hike in the Dec. 19 meeting.

But its unclear if the central bank will proceed with its steady rate hiking path, especially as inflation has moderated. Investors say recent remarks from senior Fed officials including Fed Chairman Jerome Powell could imply a pause in 2019.

Check out: Here's what Fed officials are saying about the interest-rate outlook (http://www.marketwatch.com/story/heres-what-fed-officials-are-saying-about-the-interest-rate-outlook-2018-12-11)

(END) Dow Jones Newswires

December 12, 2018 16:34 ET (21:34 GMT)