Treasuries Move Sharply Higher In Reaction To Inflation Data

(RTTNews) - After ending yesterday's choppy session modestly higher, treasuries showed a more substantial move to the upside during trading on Wednesday.

Bond prices surged early in the session and remained firmly positive throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, plunged by 13.5 basis points to 4.653 percent.

The ten-year yield added to the 1.5 basis point dip seen on Tuesday, continuing to give back ground after reaching its highest closing level in over a year on Monday.

The rally by treasuries amid a positive reaction to the Labor Department's closely watched report on consumer price inflation in the month of December.

While the report showed consumer prices rose by slightly more than expected in December, the annual rate of core consumer price growth unexpectedly slowed.

The Labor Department said its consumer price index climbed by 0.4 percent in December after rising by 0.3 percent in November. Economists had expected consumer prices to rise by another 0.3 percent.

The report also said the annual rate of growth by consumer prices accelerated to 2.9 percent in December from 2.7 percent in November, in line with economist estimates.

Meanwhile, the Labor Department said core consumer prices, which exclude food and energy prices, edged up by 0.2 percent in December after increasing by 0.3 percent for four straight months. The uptick matched expectations.

The annual rate of growth by core consumer prices slowed to 3.2 percent in December from 3.3 percent in November, while economists had expected yearly growth to remain unchanged.

"Core Inflation isn't accelerating and that's the story," said Jamie Cox, Managing Partner for Harris Financial Group. "The market may have had its hair on fire about inflation running away again, but the data do not support that conclusion."

Trading on Thursday may be impacted by reaction to a slew of U.S. economic data, including reports on weekly jobless claims and retail sales.