Treasuries Move Back To The Downside Following Inflation Data

After ending the previous session modestly higher, treasuries showed a notable move back to the downside during trading on Friday.

Bond prices came under pressure in early trading and remained firmly negative throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 8.2 basis points to 3.751 percent.

The pullback by treasuries came as a closely watched Commerce Department reading on inflation showed consumer price growth slowed by more than expected in the month of November.

The reading on inflation, which is said to be preferred by the Federal Reserve, showed the annual rate of consumer price growth slowed to 5.5 percent in November from an upwardly revised 6.1 percent in October.

Economists had expected the annual rate of consumer price growth to slow to 5.3 percent from the 6.0 percent originally reported for the previous month.

Excluding food and energy prices, annual core consumer price growth slowed to 4.7 percent in November from 5.0 percent in October, in line with economist estimates.

On a monthly basis, consumer prices crept up by 0.1 percent in November after climbing by 0.4 percent in October, while core consumer prices edged up by 0.2 percent in November after rising by 0.3 percent in October.

“Inflation is trending lower, but a return to 2% inflation is far away,” said Oren Klachkin, Lead U.S. Economist at Oxford Economics. “More policy tightening by the Fed early next year is likely.”

Meanwhile, bond traders largely shrugged off revised data from the University of Michigan showing one-year inflation expectations fell by more previously estimated in the month of December.

The report showed one-year inflation expectations in December were downwardly revised to 4.4 percent from 4.6 percent.

One-year inflation expectations were at the lowest level in 18 months, down sharply from 4.9 percent in November.

“Declines in short-run inflation expectations were visible across the distribution of age, income, education, as well as political party identification,” said Surveys of Consumers Director Joanne Hsu..

Five-year inflation expectations in December were also downwardly revised to 2.9 percent from 3.0 percent, which was unchanged from November.

Following the long Christmas weekend, trading activity is likely to be relatively subdued next week amid a light economic calendar.

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