Treasury yields fell again on Friday morning, as investors shrugged off the 5% annual jump in inflation reported in the previous session and appeared to buy the Federal Reserve’s argument that the price increases will be temporary.
The yield on the benchmark 10-year Treasury note slipped to 1.443% shortly before 7 a.m. ET. The yield on the 30-year Treasury bond dipped to 2.135%. Yields move inversely to prices.
The core consumer price index rose 5% in May on a year-on-year basis, the highest since the summer of 2008 and above the 4.7% increase expected by economists polled by Dow Jones.
Excluding food and energy, core CPI rose 3.8% year over year, the highest pace since 1992. A third of the increase was attributed to a sharp 7.3% rise in used car and truck prices.
Despite that, yields are down significantly from March, when the 10-year traded above 1.7% as the economic reopening gained steam.
Nannette Hechler Fayd’Herbe, chief investment officer at Credit Suisse International Wealth Management, said that the recent falls in longer-dated Treasury yields, despite higher inflation, could be explained by economic “growth momentum that is slowing.”
She said that markets would soon be entering another phase, driven by the guidance that central banks will give on monetary policy. The Federal Reserve’s next policy meeting on June 15 and 16 could “launch markets into … a second wave of interest rate increases as expectations of future monetary policy are also going to adjust,” she said. Hechler Fayd’Herbe expects a resurgence of higher yields for longer-dated Treasurys in the second half of the year.
The University of Michigan is set to release its national data for June on economic indicators at 10 a.m. ET on Friday, including consumer sentiment and inflation expectations.
There are no auctions due to be held Friday.
— CNBC’s Patti Domm contributed to this report.
