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U.S. government debt sold off aggressively Friday morning after data on hotter-than-expected producer prices for January.
What’s happening
-
The yield on the 2-year Treasury note
BX:TMUBMUSD02Y
rose 11.3 basis points to 4.678% from 4.565% on Thursday. -
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
rose 7.9 basis points to 4.318%, up from 4.239% on Thursday. -
The yield on the 30-year Treasury note
BX:TMUBMUSD30Y
advanced 4.6 basis points to 4.467% from 4.421% a day earlier. - All three yields were on their way toward their highest levels since at least December or November. The bond market is closed on Monday for Presidents Day.
What’s driving markets
Data released on Friday showed that the inflation fight isn’t over. The producer price index rose 0.3% in January, above the 0.1% forecast of economists polled by the Wall Street Journal. It’s possibly another sign inflation won’t slow toward the Federal Reserve’s 2% target as fast as hoped.
The PPI report comes three days after a higher-than-expected January consumer-price index sparked concerns the Federal Reserve could further push back plans to start cutting interest rates, sending Treasury yields to their highest levels since at least December.
Speaking after the market closed on Thursday, Atlanta Fed President Raphael Bostic said investors will likely have to wait until at least July for rate cuts given the economy’s current strength.
In other data released on Friday, housing starts fell almost 15% in January, to 1.33 million, as builders pulled back on new projects. That’s the sharpest drop since April 2020.
What analysts are saying
“It’s been a wild week with a gut check on Tuesday, when CPI came in higher-than-expected, and stopped the stock and bond bulls in their tracks,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance in Charlotte, N.C.
Friday’s PPI report “only further muddies the waters because two strong inflation reports (CPI and PPI) show why the Fed is going to need to move much more slowly to cut interest rates,” Zaccarelli wrote in a note.
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