US bond yields rise before CPI, production data

LONDON: US Treasury yields extended an eight-session rise on Friday but traders said the market looked increasingly oversold and it would take a surprisingly high inflation number later in the day to push prices much lower.

Treasury prices have come under pressure from upbeat recent data and an upgrade in the Federal Reserve's economic outlook this week that fueled optimism about the prospects for the world's largest economy.

10-year yields rose to their highest since October in the previous session to 2.35 percent and had stabilized not far from those levels on Friday at 2.31 percent, up 2.7 basis points on the day. Thirty-year US yields were up 3.2 bps at 3.44 percent.

Market players said inflation data would take fresh importance later this session against the backdrop of rising concerns over oil prices. A top US Federal Reserve official on Friday said rates would need to rise some time next year, while US Treasury Secretary Timothy Geithner singled out rising oil prices as a stumbling block for the economy.

US consumer prices are expected to have increased 0.4 percent month-on-month in February, while core consumer prices, excluding volatile items, is seen having risen 0.2 percent.

"If that (core) number comes in around 0.2 (percent), I think it's neither here nor there," Craig Collins, trader at Bank of Montreal said. "0.3 (percent) or higher, it will probably push prices to revisit yesterday's lows."

He said Treasury prices had entered a new trading range, which he expected to be 2.5-2.2 percent.

Industrial output numbers are also released later in the session and are expected to have risen 0.4 percent month-on-month in February. A recent improvement in US data has fueled hopes of a steady recovery, prompting market players to scale back bets for a third round of quantitative easing.

But some analysts said the market was oversold in the short-term. "For today, the focus is on the CPI and the industrial production numbers. As long as they are not much stronger than expected, then I think there is scope for a little bit of a correction lower in yields i.e. higher in prices," Marc Ostwald, strategist at Monument Securities said.