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Credit Markets: Treasury Yields Rise On Steady Sentiment -- WSJ

12 May 2018 6:32 am
By Daniel Kruger 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 12, 2018).

U.S. government bonds edged lower Friday after a report showed consumer sentiment was steady in May, exceeding forecasts that it would decline to start the month.

The yield on the benchmark 10-year Treasury note settled at 2.971%, unchanged from Thursday's close, but posted a weekly gain for the fifth time in six weeks. Yields rise as bond prices fall. On Friday, yields on three-year notes rose to 2.696% from 2.690%, and on five-year notes to 2.838% from 2.835%.

Yields rose after the University of Michigan said Friday that its index of consumer sentiment was 98.8 in May, unchanged from April. Economists surveyed by The Wall Street Journal had expected a preliminary May figure of 98.0. The sentiment measure had hit 101.4 in March, its highest level in 14 years. A final May reading will be released May 25.

Analysts attributed the rise in three- and five-year yields to investor expectations that recent inflation data could lead Federal Reserve officials to potentially slow the pace of rate increases, pushing back the point at which borrowing costs reach their projected peak.

Yields fell Thursday after the Labor Department said the consumer-price index, which measures what Americans pay for everything from ham sandwiches to sofas, rose 0.2% in April after falling a seasonally adjusted 0.1% in March. Excluding the volatile food and energy categories, so-called core prices rose 0.1%, compared with a 0.2% rise in March. Economists surveyed by The Wall Street Journal expected consumer prices to rise 0.3% in April, and core prices to rise 0.2%.

Inflation is a threat to the value of government bonds as it erodes the purchasing power of their fixed interest payments and can spur the Fed to raise interest rates.

If data continues to show inflation rising slower than expected, investors may infer it is "delaying the Fed path" to higher interest rates, said Aaron Kohli, an interest-rate strategist at BMO Capital Markets. Such speculation could point to the pace of rate increases accelerating in 2019, he said.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

(END) Dow Jones Newswires

May 12, 2018 02:32 ET (06:32 GMT)

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