Treasuries Move Significantly Higher Following Consumer Prices Data

After ending the previous session modestly lower, treasuries showed a significant move to the upside over the course of the trading day on Thursday.

Bond prices moved higher early in the session and climbed more firmly into positive territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 9.2 basis points to 3.133 percent.

Treasuries initially benefited from the release of a report from the Labor Department showing consumer prices rose by less than expected in the month of September.

The Labor Department said its consumer price index inched up by 0.1 percent in September after rising by 0.2 percent in August. Economists had expected prices to increase by another 0.2 percent.

Excluding food and energy prices, core consumer prices also crept up by 0.1 percent in September, matching the uptick seen in the previous month. Core prices had been expected to rise by 0.2 percent.

The report also said the annual rate of consumer price growth slowed to 2.3 percent in September from 2.7 percent in August, while the annual rate of core consumer price growth was unchanged at 2.2 percent.

“Overall, the September figures confirm that core inflation has lost a little momentum in recent months, and the stronger dollar will put downward pressure on goods prices over the coming year or so,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, “But with activity growth still strong and underlying inflation in the services sector still trending higher, we suspect the Fed will continue to raise interest rates over the coming quarters.”

A separate report released by the Labor Department unexpectedly showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended October 6th.

The report said initial jobless claims rose to 214,000, an increase of 7,000 from the previous week’s unrevised level of 207,000. Economists had expected jobless claims to edge down to 206,000.

Treasuries saw some further upside in afternoon trading following the release of the results of the Treasury Department’s auction of $15 billion worth of thirty-year bonds.

The thirty-year bond auction drew a high yield of 3.344 percent and a bid-to-cover ratio of 2.42, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.32.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

The slightly above average demand for thirty-year bonds came after the three-year and ten-year note auctions on Wednesday both attracted below average demand.

Looking ahead to Friday, traders are likely to keep an eye on reports on import and export prices in September and consumer sentiment in October.

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