NEW YORK: US Treasuries prices edged lower on Thursday after stronger aspects of U.S. consumer price data failed to bolster the case for dovish Federal Reserve policy and incoming supply weighed on prices.
U.S. consumer prices posted their biggest drop since 2008 in January as gasoline prices continued to tumble, falling 0.7 percent. Core CPI, which strips out food and energy costs, rose 0.2 percent in January, however, after edging up 0.1 percent in December.
Analysts said while the headline figure was weak, the gain in the core CPI failed to support the view of a dovish Fed and discouraged traders from continuing to bid up Treasuries after Wednesday's gains.
"You go, 'OK, I'm going to set up and I'm going to protect in case this piece of data changes. Well this piece of data was fine, it was roughly as expected, and so now I can be slightly less defensive,'" said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
While the stronger aspects of the data did not support the view of a dovish Fed stance on hiking rates, the weaker headline reading did not lead traders to believe the Fed would turn more hawkish, either.
The CPI data came after two days of testimony by Fed Chair Janet Yellen for the central bank's semiannual economic and monetary policy report to Congress. Investors interpreted Yellen's remarks as indicating the central bank was giving itself more flexibility to hike rates later than June.
"The way Yellen spelled it out, they're obviously looking at inflation, and it's still a bit too low for them to raise rates," said Justin Lederer, an analyst at Cantor Fitzgerald in New York.
The CPI data's mixed message kept Treasuries prices from gaining or selling off dramatically.
Traders also awaited the Treasury's auction of $29 billion in 7-year notes at 1 p.m. EST (1800 GMT), which weighed slightly on prices as traders made room for the new supply.
The lingering view of a dovish Fed, month-end buying, and gains in European bond prices capped losses in Treasuries prices.
U.S. 30-year Treasury bonds were down 2/32 in price to yield 2.57 percent, roughly unchanged from late Wednesday's yield. Benchmark 10-year notes were off 3/32 to yield 1.98 percent, from a yield of 1.97 percent late Wednesday.
U.S. three-year notes dipped 2/32 to yield 1 percent, from a yield of 0.97 percent late Wednesday.
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