NEW YORK- US Treasury yields were mixed on Wednesday, with those on benchmark 10-year notes falling to a roughly two-week low, as prices rose on safe-haven flows due to fighting in the Middle East that has persisted for a fifth straight day.
US two-year yields, which reflect interest rate expectations, rose modestly following slightly hotter-than-forecast producer prices (PPI) data amid high energy costs. The benchmark 10-year yields also came off their lows in the wake of the PPI data.
Yields fall when US Treasury debt prices rise.
The producer price index for final demand rose 0.5 percent last month, the Labor Department said. Data for August was unrevised to show the PPI accelerating 0.7 percent . Economists polled by Reuters had expected the PPI to gain 0.3 percent in September.
Investors will next give their attention to Thursday’s US consumer price index (CPI), which will set the direction for interest rates going forward.
The main focus, however, remained on the ongoing war in Israel. Israeli warplanes bombed Gaza repeatedly ahead of a possible ground offensive in the Palestinian coastal strip.
“We have seen a bit of haven bid in Treasuries and it’s going mostly to the long end of the curve given the uncertainty on what the Federal Reserve is going to do,” said Kim Rupert, managing director, global fixed income analysis, at Action Economics in San Francisco.
She thinks US rates have peaked.
“I don’t think CPI tomorrow will make a major difference unless it really pops, but the trend seems pointed toward a deceleration in price pressures,” Rupert said.
“A lot of the Fed speakers, including the hawks, also indicated that they’re willing to be patient and perhaps the pop in rates could do some of the work for them.”
US rate futures on Wednesday have priced a 70 percent chance the Fed will keep interest rates steady at next month’s meeting, according to the CME’s FedWatch tool.
In afternoon trading, the US 10-year yield dropped to a two-week trough of 4.544 percent and was last down 7.6 basis points (bps). It was also on course for its largest weekly fall in three months.
The two-year yield on the other hand, rose 1.1 bps to 4.994 percent , after declining to a one-month low the previous session.
US yields, though, showed little reaction to the Fed minutes of the September meeting released on Wednesday. The minutes showed that Fed officials took a cautious stance last month given the uncertainty around the path of the US economy, including difficulties estimating the state of financial markets, potential oil price shocks, and the impact of labor union strikes.
