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Bond Report: 6-month through 20-year Treasury yields soar further above 4% after September CPI comes in hot


Treasury yields ticked lower Thursday as investors awaited the September reading of the U.S. consumer-price index.

What yields are doing

The yield on the 2-year Treasury note

was at 4.266%, down from 4.287% at 3 p.m. Eastern on Wednesday.

The 10-year Treasury note yield

pulled back to 3.851% from 3.901% on Wednesday afternoon.

The 30-year Treasury bond yield

was at 3.842% versus 3.886% late Wednesday.

Market drivers

The latest reading on U.S. consumer price inflation for September is due at 8:30 a.m. Eastern.

The CPI is expected to show a rise of 0.3% in September, according to economists surveyed by The Wall Street Journal, moderating in part because cheaper gasoline kept the overall price increase down. Still, the rise in the CPI over the past year is expected to be little changed at around 8.2%.

The core CPI reading, which strips out food and energy, is forecast to rise a more pronounced 0.5% in September. That would push the yearly rate of core inflation up to 6.5% from 6.3%, economists estimate, to match the sharpest core increase since 1982.

See: What stock-market investors will be watching in Thursday’s inflation report

Meanwhile, concerns about liquidity in the U.S. Treasury market were underlined Wednesday by U.S. Treasury Secretary Janet Yellen.

“We are worried about a loss of adequate liquidity in the market,” Yellen said Wednesday in response to questions following a speech in Washington, according to news reports. Yellen said the balance-sheet capacity of broker-dealers to engage in market-making in the Treasury market hadn’t expanded much, while the overall supply of Treasurys has increased.

Related: The next financial crisis may already be brewing — but not where investors might expect

The Treasury Department will wrap up this week’s auctions with an $18 billion 30-year bond reopening Thursday afternoon.

What analysts say

“The market reaction to this release will be asymmetric in our view, given that the Fed has already taken very hawkish steps to counter inflationary pressure,” said economists at UniCredit Bank, in a note.

“Higher-than-predicted figures would probably have a stronger (negative) impact on USTs (and fixed income securities in general) than lower-than-expected data would. Expectations on future fed-funds rate hikes will be influenced as well,” he wrote.

BLS: CPI increased 0.4% in September; Core CPI increased 0.6%

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