Yields rise, curve flattens as US core consumer prices gain

NEW YORK: US benchmark Treasury debt yields rose to one-week highs on Wednesday and the yield curve flattened after data showed that core consumer prices rose in January, easing concerns about a drop in inflation.

The core Consumer Price Index, which excludes volatile food and energy components, rose 0.2 percent for a fifth straight month.

"The core CPI print was quite solid," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "I think there is a little bit of a breath of relief here that underlying inflation is still relatively solid and the Fed can continue to hike."

Benchmark 10-year notes fell 7/32 in price to yield 2.708 percent.

The yields have dropped from 2.799 percent on Jan. 18 and are down from a seven-year high of 3.261 percent in October as investors adopt a more pessimistic view of the global economy and price in a far more dovish Federal Reserve.

The yield curve between two-year and 10-year notes flattened to 17 basis points, from 18 basis points before the inflation data.

Two-year notes are the most sensitive to interest rate policy.

Retail sales data for December on Thursday and consumer sentiment data on Friday will be the next economic focus for further signals about the US economy's strength.

Yields also rose as optimism that the US government would avert another shutdown and that the US would forge a trade deal with China reduced safe haven demand for the bonds.

US President Donald Trump left his options open on Wednesday over whether to sign a funding deal that would avert another partial government shutdown but leave him short of the money he wants to build a wall on the border with Mexico.

US Treasury Secretary Steven Mnuchin said talks with China went well on Wednesday, as the world's two largest economies try to iron out an agreement to resolve their trade dispute.