Treasuries Move Sharply Lower On Hotter-Than-Expected Inflation Data

(RTTNews) - After trending lower over the past several sessions, treasuries showed a significant move to the downside during trading on Thursday.

Bond prices fell sharply in morning trading and remained firmly negative throughout the afternoon. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged 10.6 basis points to 4.298 percent.

The sell-off by treasuries reflected renewed concerns about the Federal Reserve further postponing its first interest rate cut following the release of hotter-than-expected inflation data.

A report released by the Labor Department this morning showed U.S. producer prices increased by much more than expected in the month of February;

The Labor Department said its producer price index for final demand climbed by 0.6 percent in February after rising by 0.3 percent in January. Economists had expected producer prices to rise by another 0.3 percent.

The report also said the annual rate of producer price growth accelerated to 1.6 percent in February from a revised 1.0 percent in January.

Economists had expected the year-over-year price growth to rise to 1.1 percent from the 0.9 percent originally reported for the previous month.

"With less than a week to go until the next meeting of US central bankers, markets are having to face up to the prospect that the path to a pivot will be a long and winding one," says Danni Hewson, head of financial analysis at AJ Bell.

She added, "Investors can still subscribe to the expectation that the 'Goldilocks' scenario is in play, but it's going into extra time and that's requiring a bit of a rethink.

Meanwhile, the Commerce Department released a report showing retail sales rebounded in the month of February, although the increase fell short of economist estimates.

The Commerce Department said retail sales climbed by 0.6 percent in February after slumping by a revised 1.1 percent in January.

Economists had expected retail sales to increase by 0.8 percent compared to the 0.8 percent decrease originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales rose by 0.3 percent in February after falling by 0.8 percent in January. Ex-auto sales were expected to rise by 0.5 percent.

However, FHN Financial chief economist said, "When the Fed is contemplating a series of rate cuts and is confronted by suddenly slower economic growth and suddenly brisker inflation, they will respond to the new news on the inflation side every time."

"After all, this is not the first time in the past couple of years consumers have paused spending for a couple of months to catch their breath, and getting inflation to 2% has been an overriding goal since the Fed abetted Congress in driving inflation to 7% in 2021," he added.

Trading on Friday may be impacted by reaction to another batch of U.S. economic data, including reports on import and exports prices, industrial production and consumer sentiment.