U.S. bond yields rose Wednesday morning after data showed stubbornly high price pressures in the U.K., reviving inflation concerns.
What’s happening
-
The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.144%
climbed to 4.242% from 4.197% on Tuesday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.534%
rose to 3.611% from 3.571% as of Tuesday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.741%
advanced to 3.805% from 3.787% late Tuesday.
What’s driving markets
Data released on Wednesday showed that U.K. inflation is proving sticky, causing a broad selloff in government bonds that forced up yields.
The Office for National Statistics said consumer prices rose 10.1% year-over-year in March, down from 10.4% in February, though above economists’ forecasts for a 9.8% rate.
Benchmark 10-year gilt yields
TMBMKGB-10Y,
3.766%
jumped 9 basis points to 3.841% as traders increased bets that the Bank of England will raise interest rates by another 25 basis points to 4.5% on May 11.
U.S. annual headline inflation, based on the consumer-price index, has fallen from a four-decade high of 9.1% last June, but remains well above the Federal Reserve’s 2% target, at 5% for March.
Markets are pricing in an 86% probability that the Fed will raise interest rates by another 25 basis points to a range of 5% to 5.25% on May 3, according to the CME FedWatch tool. The central bank is mostly expected to take its fed-funds rate target back down to between 4.5% and 4.75%, or lower, by December, according to 30-day Fed Funds futures.
The Federal Reserve’s Beige Book of economic anecdotes will be published at 2 p.m. Eastern time, and New York Fed President Williams is due to speak at 7 p.m.
What analysts are saying
Treasurys “were under pressure overnight in the wake of higher-than-expected U.K. inflation print,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.
“As a result, the market is pricing in a higher probability that the Bank of England delivers another hike when the decision is made on May 11,” they wrote in a note. “The Treasury market traded weaker overnight in a sympathy move that brought 10-year yields as high as 3.635%.”
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