Ten-Year Yield Spikes To Two-Month High Following Inflation Data

(RTTNews) - Treasuries moved sharply lower during trading on Tuesday, more than offsetting the uptick seen in the previous session.

Bond prices showed a steep drop early in the session and saw further downside going into the close. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged 14.4 basis points to 4.316 percent.

With the spike on the day, the ten-year yield ended the session at its highest closing level in well over two months.

The sell-off by treasuries came following the release of a highly anticipated Labor Department report showing consumer prices in the U.S. increased by slightly more than expected in the month of January.

The Labor Department said its consumer price index rose by 0.3 percent in January after inching up by 0.2 percent in December. Economists had expected consumer prices to edge up by 0.2 percent.

While the report also showed the annual rate of consumer price growth slowed to 3.1 percent in January from 3.4 percent in December, economists had expected the pace of growth to slow to 2.9 percent.

Excluding food and energy prices, core consumer prices climbed by 0.4 percent in January after rising by 0.3 percent in December. Core prices were expected to increase by 0.3 percent.

The annual rate of core consumer price in January came in unchanged from the previous month at 3.9 percent. The pace of core price growth was expected to decelerate to 3.7 percent.

With Federal Reserve officials repeatedly saying they need more "confidence" inflation is slowing before lowering interest rates, the data has further reduced optimism about a near-term rate cut.

CME Group's FedWatch Tool is currently indicating just an 8.5 percent chance of a quarter point rate cut in March, while the chances of a quarter point rate cut in early May have fallen to 35.3 percent.

Quincy Krosby, Chief Global Strategist for LPL Financial, called the report a "disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later."

"This report underscores the Fed's messaging that they'll need more information specifically inflation-related data before a policy transition," Krosby said. "The 'last mile' - as expected - is proving to be stickier and more stubborn inhibiting even the most dovish wing of the FOMC."

A relatively quiet day on the U.S. economic front may lead to light trading on Wednesday ahead of an avalanche of data on Thursday.