The 10-year U.S. Treasury yield fell below 3% on Wednesday as prices rose faster than expected after the release of key inflation data.
The benchmark 10-year Treasury note yield has risen above 3% since the report before settling at 6 basis points 2.93%. The 30-year Treasury bond fell nearly 9 basis points to 3.042%. Yield goes up in price and 1 basis point equals 0.01%.
The April consumer price index, a key measure of inflation, rose 0.3% month-on-month and 8.3% year-on-year. Economists expect the CPI to rise 0.2% from the previous month and 8.1% year-on-year, according to the Dow Jones consensus estimate. This compares with March’s 8.5% year-over-year pace.
Core CPI, which removes volatile food and energy prices, has seen a larger jump of 0.6% month-on-month. Economists surveyed by the Dow Jones expected 0.4% growth.
“Markets may welcome the confirmation of an annual inflation peak after a seemingly never-ending upward trajectory; but, presumably, markets will be disappointed – this is another upward inflation surprise and suggests that the slowdown is going to be laboriously slow,” said Principal. “Focus will soon begin to shift from where inflation was at its peak to where it is on the plateau and we fear it will be an uncomfortably high level plateau for the Fed.”
It is important to read inflation that this data is essentially setting the Federal Reserve’s guidelines on raising interest rates. Both pricing pressures and more aggressive rate hikes have raised concerns about the slowdown in economic growth.
Madison Fowler, a global market strategist at JPMorgan Private Bank, told CNBC’s “Squawk Box Europe” on Wednesday that she believes the Fed policy has “intentional effects on removing some of the pressure and slowing things down.”
Fowler says the Fed is trying to suppress some demand that is helping to push up inflation.
He believes the slowdown in demand is already being reflected in the housing sector, as the new 30-year mortgage rate has “skyrocketed” to 5.5%.
“It really makes sense to consider the housing market the most cyclical part of the U.S. economy – 65% of Americans own a home and it tells us that the Fed is already doing its job,” he said.
“But what it does tell us is that interest rate advances from here can be limited because you have that negative economic feedback loop,” Fowler added.
Investors are also focusing on the Ukraine conflict and the Covid-19 lockdown in China.
– Hannah Mia of CNBC also contributed to this market report.