NEW YORK: US Treasuries were little changed on Tuesday as investors reversed early selling spurred by stronger-than-expected consumer price data.
Yields on two- and three-year notes rose to their highest in nearly three weeks after the Labor Department reported that its Consumer Price Index increased 0.4 percent in April, the largest gain since February 2013.
But Treasuries retraced those levels as investors dug into the report's core numbers, which largely matched expectations. Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC, called CPI "basically" on target and "right on top of expectations, certainly when it comes to core inflation." The core CPI, which strips out food and energy costs, rose 0.2 percent last month, matching economists' predictions, and increased 2.1 percent in the 12 months through April.
Those numbers signaled that the economy was normalizing, but were certainly not indicative of high or runaway inflation, LeBas said.
The year-over-year increase in the core reading shrank in April from 2.2 percent in March and much of the increase in the CPI came from gains in gasoline prices as well as higher rents and home prices. That moved rates back near their levels from late Monday, said Sharon Stark, chief fixed income strategist at D.A. Davidson & Co.
"CPI tends to be more heavily weighted to shelter, and given the consistent increases in both home prices and rents it doesn't surprise me to see CPI higher," Stark said.
US housing starts and building permits also rose more than expected in April as builders ramped up the construction of single- and multi-family homes. Longer-dated yields fell.
The five-year, 30-year yield curve moved to its flattest level since March 29, possibly indicating the US economy is gaining traction but long-term inflation remains sluggish.
Yields for two-year Treasury notes rose as high as 0.82 percent following the data, their highest since April 28. Prices, which move in the opposite direction of yields, for the two-year note were last down 1/32 for a yield of 0.799 percent.
Benchmark 10-year notes rose 3/32 in price to yield 1.745 percent, little changed from late Monday. Thirty-year bonds rose 15/32 in price to yield 2.576 percent.