NEW YORK- US Treasury yields climbed on Friday after economic data showed producer prices increased more than expected in January, ratcheting down market expectations for the timing of a rate cut from the Federal Reserve this year.
The Labor Department’s Bureau of Labor Statistics said the producer price index for final demand rose 0.3 percent last month, in part due to strong gains in the costs of services, after declining by a revised 0.1 percent in December and above the 0.1 percent increase forecast of economists polled by Reuters.
The data comes after a reading earlier this week on consumer prices also showed a stronger-than-expected increase.
After the report, market expectations the Fed will start cutting rates in June were dialed back, with CME’s FedWatch Tool now showing a 72.7 percent chance for a cut of at least 25 basis points, down from 81.6 percent in the prior session.
The yield on the benchmark US 10-year Treasury note climbed 5.3 basis points to 4.293 percent , down from an earlier high of 4.33 percent and was on pace for its second straight weekly gain.
“Rates are backing off in the 4.25 percent or 4.35 percent ballpark range, they’re seeing pretty good buyers step in and that tells you that the market has done a good job of backing off the implied rate cuts for the balance of this year, or at least what happens over the next 18 months,” said Thomas Urano co-chief investment officer at Sage Advisory in Austin.
“It’s a little bit of a rinse or repeat on that whole process, constantly trying to game the timing of the rate cuts… So every time we get a release that shows the data is still kind of okay or maybe a little scary then it just pushes that whole rate cut policy path further out into the future.”
The 10-year is also facing a strong technical resistance point at 4.34 percent , according to Tom di Galoma, co-head of global rates trading at BTIG in New York, and a break above could signal a move towards the 4.5 percent level.
Other data showed US single-family homebuilding fell in January, likely because of harsh weather conditions, but a rise in permits for future construction suggested a rebound in the coming months.
The yield on the 30-year bond rose 2.7 basis points to 4.4482 percent
On Friday, comments from Federal Reserve Bank of Atlanta President Raphael Bostic and Federal Reserve Bank of San Francisco President Mary Daly indicated the central bank was ready to remain patient before deciding to cut rates this year.
Yields eased somewhat after the University of Michigan said its preliminary readingconsumer sentiment was little changed in February while one-year inflation expectations ticked up.
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes seen as an indicator of economic expectations, was at a negative 36.74 basis points from a negative 34.63 on Thursday.
The 2-year note yield, which typically moves in step with interest rate expectations, gained 8.6 basis points to 4.6544 percent and was poised for a third straight week of gains, its longest streak since September. -Reuters
