Traders push real yields to record lows on inflation concerns
New York (Nov 10) - Traders sent real yields on U.S. Treasuries to record lows on Wednesday after new consumer price data reinforced inflation concerns and flattened a closely watched part of the yield curve.
The yield on 10-year Treasury Inflation Protected Securities dipped as low as -1.243% and the yield on 30-year TIPS went as low as -0.608%, both records, in morning trading.
The moves came after higher-than-expected consumer price inflation, which could lead to monetary tightening. A report from the U.S. Labor Department showed prices increased more than expected in October as the cost of gasoline and food surged, leading to the biggest annual gain since 1990.
"The market has to do a one-time adjustment on inflation expectations and that's why you get a day like today," said Gary Pzegeo, head of fixed income for CIBC Private Wealth.
The benchmark 10-year yield was up 7.7 basis points at 1.5255%. Increases were higher in the middle of the curve such as on the five-year note, up 12.2 basis points at 1.19%.
The two-year note <US2YT=RR, which typically moves in step with interest rate expectations, was up 9.6 basis points at 0.5049% and its absolute change for the session was the most since March 2020.
Jack Ablin, chief investment officer for Cresset Capital in Chicago, said the market moves reflected growing concerns about higher prices. "The inflation came in higher than expected, and bond investors need to be compensated for the purchasing power risk," he said.
The moves left parts of the U.S. Treasury yield curve flatter. The gap between yields on five- and 30-year Treasuries was at 68 basis points, down 6 basis points from
Tuesday's close and the lowest since March of 2020. The gap between two-year and 10-year Treasuries was at 101 basis points, roughly unchanged since Tuesday.
BMO Capital Markets interest rate strategist Ben Jeffery said the flattening suggested a more aggressive normalization path by the U.S. Federal Reserve.
"At this point the flatter curve seems to be pointing to more aggressive Fed action, so I think that's going to be the primary story probably over the next several months or even the next quarter or two," he said.
Traders will watch the results of an auction of $25 billion of 30-year bonds.
Reuters
