U.S. Government Bond Yields Climb Following Consumer-Price Data
May 12 2021 - 12:30PM
Dow Jones News
By Sebastian Pellejero
U.S. government bond yields climbed Wednesday after new data
showed consumer prices surged in April, a sign that the economic
recovery is still picking up steam.
The yield on the benchmark 10-year Treasury note recently traded
at 1.668%, according to Tradeweb, up from 1.624% at Tuesday's
close.
Yields, which rise when bond prices fall, shot up after the
Labor Department reported its consumer-price index jumped 4.2% in
April from a year earlier -- the highest 12-month level since the
summer of 2008 -- due to supply bottlenecks and surging demand as
the coronavirus pandemic eased.
Rising consumer prices worry bondholders because inflation
erodes the value of bonds' fixed payments and can lead the Federal
Reserve to raise interest rates.
Analysts and investors are parsing through April's data to gauge
the extent of what many expect to be a monthslong rise in prices.
Some believe that faster-than-expected growth and inflation, fueled
by the distribution of stimulus money and vaccines, may force the
Fed to tighten its easy-money policies, which have included holding
interest rates near zero and buying billions of dollars worth of
bonds.
"The market is trying to reorganize its thoughts about what
today's [inflation] data means for the months ahead," said Jim
Vogel, interest rates strategist at FHN Financial.
The Fed expects inflation to climb this year. But central bank
officials have said they anticipate that rise to be transitory and
to fall short of its new goal of averaging 2% over time. That means
letting prices rise faster than 2% for some time to make up for
periods of lower inflation.
In a speech Wednesday after the inflation data was released,
Richard Clarida, the Fed's vice chairman, reiterated this belief,
saying that "one-time increases in prices are likely to have only
transitory effects on underlying inflation" and that he expects
inflation to return to, or perhaps run somewhat above, the Fed's
longer-run goal in 2022 and 2023.
The run-up in yields comes before an auction of $41 billion of
10-year notes later this afternoon, which will provide another
measure of investors' demand for Treasurys.
Write to Sebastian Pellejero at sebastian.pellejero@wsj.com
(END) Dow Jones Newswires
May 12, 2021 12:15 ET (16:15 GMT)
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