By Davide Barbuscia
NEW YORK- US Treasury yields rose on Wednesday after the release of August data showing US consumer prices rose marginally while underlying inflation remained sticky, curbing expectations for a large interest rate cut by the Federal Reserve next week.
Excluding the volatile food and energy components, the Consumer Price Index climbed 0.3 percent in August after rising 0.2 percent in July. In the 12 months through August, the so-called core CPI increased 3.2 percent . That followed a 3.2 percent gain in July.
Treasury yields, which move inversely to prices, surged after the release, as traders pared back bets on a 50 basis point cut by the US central bank at its Sept. 17-18 rate setting meeting.
“Core (CPI) at 0.3 percent is what’s shaken up the market,” said Tony Farren, managing director in rates sales and trading at Mischler Financial Group.
“This dampens the chances of a 50 basis point cut in September; I think that’s definitely off the table now, and it hurts the chances for any 50 bps cut for the rest of the year, although we still have a lot of data after,” he said.
Yields subsequently declined, likely because of some dip-buying activity, even if they ultimately inched higher. “There are people who are still not long and always try to take opportunities when you have the market selling off,” said John Madziyire, head of US Treasuries and TIPS at Vanguard.
Late on Wednesday, traders largely bet on 25 basis point cut next week, while a bigger half-point cut had a 13 percent probability, down from about 34 percent on Tuesday, CME Group data showed.
The uptick in yields followed price gains overnight that had led 10-year yields to their lowest since June 2023 and two-year yields to their lowest since September 2022.
Some analysts said that was partly a reaction to the US presidential debate on Tuesday evening. Vice President Kamala Harris, the Democratic candidate, was widely seen as dominating the debate with Republican former President Donald Trump, prompting betting markets to give her better odds in the November presidential election. – Reuters
