Treasuries-US yields higher as economic data keeps Fed expectations in check

Fed officials have recently flagged concerns about inflation pressures over the labor market, while Chair Kevin Warsh said the cooler inflation reading was welcome, but more evidence would be needed to feel confident that price pressures were ebbing. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on 2- and 10-year notes, seen as an indicator of economic expectations, was at a positive 40.3 basis points. On Thursday, Kansas City Fed President Jeff Schmid said that inflation was proving to be persistent across a broad range of goods and services, and remains the focus of monetary policy given a stable labor market, while Dallas Federal Reserve President Lorie Logan called for "modestly higher" interest rates. The 2-year note yield, which typically moves in step with interest rate expectations, gained 2.8 basis points to 4.156%. The breakeven rate on 5-year U.S. Treasury Inflation-Protected Securities was last at 2.259% after closing at 2.265% on Wednesday. The 10-year TIPS breakeven rate was last at 2.236%, indicating the market sees inflation averaging about 2.2% a year for the next decade. U.S. Treasury yields were modestly higher on Thursday after data on consumer health and the labor market did little to modify investor expectations on the path of near-term interest rates from the Federal Reserve. The Commerce Department said retail sales rose 0.2% last month, matching the estimate by economists polled by Reuters, after an upwardly revised 1.0% jump in May. A separate report from the Labor Department showed weekly initial jobless claims dropped 8,000 to a seasonally adjusted 208,000, below economists' 217,000 estimate, indicating the labor market remains on stable footing. Yields had fallen in the prior two sessions, as readings on consumer and producer prices were cooler than anticipated, tempering expectations for a near-term rate hike from the Fed. "There is just a lot of jitteriness within the market in there not really being a consensus of exactly how to interpret a lot of this data, in the context of what the Fed might do," said Tom Simons, chief U.S. economist at Jefferies in New York. "I don't think anything in the data this morning changes too, too much. It kind of confirms some of the things that we've seen in the data for the last couple of months... but it doesn't really tell you too much about what the Fed might do in the next couple of months." The yield on the benchmark U.S. 10-year Treasury note added 1.6 basis points to 4.561%. The yield had dropped 6.5 basis points over the past two days, its largest two-day fall in three weeks. Energy prices have come down in recent weeks on expectations that a durable peace deal could be reached between the U.S. and Iran. However, hostilities have intensified in recent days and caused a reversal in crude prices to one-month highs. U.S. crude declined 1.22% to $78.67 a barrel and Brent fell to $84.07 per barrel, down 1.04% on the day. The rising crude prices had raised expectations the Fed would hike rates at its July meeting, before recent inflation data prompted traders to scale back those bets. Money markets are currently pricing in just a 10.2% chance for a rate hike at the central bank's policy meeting later this month, down from slightly more than 40% on Monday, according to CME FedWatch. However, the market is pricing in a 55.1% probability of a hike of at least 25 basis points at the Fed's September meeting, up from 48.4% on Wednesday. The yield on the 30-year bond edged up 0.9 basis point to 5.092%.

Treasuries-US yields higher as economic data keeps Fed expectations in check

Fed officials emphasize inflation concerns

Treasury yields edge higher after retail sales, claims data

Rate expectations shift as crude prices and Fed comments move markets

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