By Gertrude Chavez-Dreyfuss
NEW YORK- US Treasury yields drifted lower on Tuesday after data showed producer prices increased modestly in December and came in lower than expected, with investors also taking advantage of the drop in prices that led to the recent surge in yields to cover short positions.
The benchmark 10-year yield was down 1.7 basis points (bps) at 4.788 percent after hitting 4.805 percent overnight, the highest since November 2023.
On the short-end of the curve, the two-year yield, which is sensitive to rate outlook expectations, fell 3.7 bps to 4.365 percent on Monday, it climbed to 4.426 percent, the strongest level since July.
Data showed that US producer prices rose moderately last month, with the index for final demand gaining 0.2 percent last month after an unrevised 0.4 percent advance in November. Economists polled by Reuters had forecast PPI climbing 0.3 percent.
“The pullback in yields could be due to some consolidation. This has been a pretty fast and furious move up to around 4.80 percent in the 10-year,” said Zachary Griffiths, senior investment grade strategist at CreditSights, in Charlotte, North Carolina.
“If you look at the PPI number, they were a bit better than the forecast (meaning lower inflation). I think that played into it a bit, even though it doesn’t have any bearing in terms of the Fed meeting. The Fed is clearly on hold, especially after the payrolls numbers last Friday, and at least for the next couple of meetings.”
Investors are now looking to Wednesday’s US consumer price index (CPI) report for confirmation about the next move by the Federal Reserve. Wall Street economists are forecasting that the CPI inched up 0.3 percent in December, unchanged from the previous month, with the year-on-year figure climbing to 2.9 percent from 2.7 percent in November, according to a Reuters poll.
The core CPI, meanwhile, is expected to have risen 0.2 percent in December, down from 0.3 percent in the prior month.
“From here, we expect that the theme in the Treasury market will be one of consolidation and we’re wary of a grind marginally higher in yields in the absence of any other tradable events as we watch for more insight from the incoming administration regarding initial tariff plans,” wrote Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York, following the PPI data’s release. —Reuters