By Davide Barbuscia
NEW YORK- US Treasury yields dropped on Wednesday as investors piled into US government bonds following weak consumer sentiment surveys in Europe, while US inflation concerns took a temporary backseat as data came in line with estimates.
Amid a flurry of economic data, the highlight on Wednesday was the Personal Consumption Expenditures price index, which matched expectations with a 0.2 percent monthly increase and a 2.3 percent annual rise. Core PCE, which strips out volatile food and energy items and is the Federal Reserve’s preferred gauge of inflation, was also in line with estimates.
While inflation remained elevated and above the Fed’s 2 percent target, the bond market reaction was muted ahead of the Thanksgiving holiday on Thursday.
“Inflation is fading as an issue as investors shift to cyclical growth,” said David Russell, global head of market strategy at TradeStation.
Concerns about a rebound in inflation resurfaced this week after President-elect Donald Trump pledged to impose punitive tariffs on imports from Canada, Mexico, and China.
“It used to be the economy and then the election … And now it’s still the economy,” said Jack McIntyre, global fixed income portfolio manager at Brandywine Global.
“And if you look at the economy … The Fed may cut, even if it’s going to be a hawkish cut,” he said, referring to the US central bank’s next rate-setting meeting in December. – Reuters
