U.S. government bond yields stand pat as traders watch for December inflation report

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U.S. Treasury yields were retreating slightly but mostly holding their ground on Wednesday morning, as investors awaited a report on consumer inflation that could stoke a fresh bout of volatility in government bond rates.

U.S. inflation is on track to have closed out 2021 near its highest level since 1982 as heightened consumer demand and supply-chain problems stemming from the COVID pandemic combined to stoke pricing pressures.

What are yields doing?
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.735%
    yields 1.747%, compared with 1.745% on Tuesday at 3 p.m. Eastern Time. Yields rise as bond prices fall.

  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.898%
    rate was at 0.903%, up from 0.897% a day ago.

  • The 30-year Treasury bond rate
    TMUBMUSD30Y,
    2.078%
    stood at 2.070%, virtually unchanged from 2.072% on Tuesday afternoon.

  • The 7-year Treasury note
    TMUBMUSD07Y,
    1.679%
    was yielding 1.688%, down from around 1.691 % on Tuesday, FactSet data show.

  • The spread between 7- and 10-year rates were teetering on the brink of inversion.

What’s driving the market?

Economists surveyed by The Wall Street Journal estimate that CPI rose 7.1% in December from the same month a year earlier, up from 6.8% in November. That would mark the fastest pace since 1982 and the third straight month in which inflation exceeded 6%.

On Tuesday, Powell, in testimony in front of a Senate panel as a part of his re-confirmation hearing for a second, four-year term as Federal Reserve Chairman, said supply-chain issues would ease this year and help bring inflation down.

A separate inflation reading, measuring producer prices, is scheduled for 8:30 a.m. on Thursday.

Looking beyond inflation reports, investors will watch for a $36 billion of 10-year Treasury notes at 1 p.m.

What strategists are saying

“Over the next couple of days the bond market has to deal with 10yr and 30yr supply and with inflation figures of CPI and PPI. We continue to look for higher rates however believe that the 1yr-5yr sector is most vulnerable to higher yields due to four Fed tightenings in 2022,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities. 

source

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