Treasury yields remained near recent lows on Friday morning, as investors ignored the previous session’s 5% annual increase in inflation and appeared to believe the Federal Reserve’s argument that the price increases would be temporary.
At 4:00 p.m. ET, the yield on the benchmark 10-year Treasury note remained unchanged at 1.455 percent. The 30-year Treasury bond yield has fallen to 2.142 percent. Yields move in the opposite direction of prices.
The 10-year yield was trading at 1.428 percent at one point on Friday morning, its lowest level since March 3. The 30-year bond fell to its lowest level since February 26.
The core consumer price index increased 5% year on year in May, the most since the summer of 2008 and more than the 4.7 percent increase predicted by Dow Jones economists polled.
Core CPI rose 3.8 percent year on year, the fastest rate since 1992, excluding food and energy. A third of the increase was due to a 7.3 percent increase in used car and truck prices.
Despite this, yields have fallen significantly since March, when the 10-year bond traded above 1.7 percent as the economic reopening gained traction. Just a week ago, the benchmark yield was trading above 1.6 percent.
Fed officials, including Chair Jay Powell, have repeatedly stated that high inflation readings are to be expected in the spring and summer, but that they are likely to be transitory. As the economy recovers from the pandemic, the central bank has stated that it is willing to allow inflation to rise above its traditional 2 percent target.
In a note issued on Friday, Bleakley Advisory Group’s Peter Boockvar, who is sceptical that inflation will be transitory, predicted that price increases will broaden in the coming months.
“I understand that it will be difficult to maintain the aggressive increases in used car prices that many are pointing to as a reason for transitory, but I also believe that we are just getting started with broad price increases in almost everything else. And you haven’t seen nothing yet when it comes to rent increases in the services sector, which is the largest component of CPI “According to Boockvar.
Friday morning, the University of Michigan released its June national data on economic indicators. Its preliminary consumer sentiment index rose to 86.4 in June, up from 82.9 in May. One-year inflation expectations fell to 4.0 percent in June, down from 4.6 percent in May, and five-to-10-year inflation expectations fell to 2.8 percent, down from 3.0 percent.
There are no auctions due to be held Friday.