Yields drop as inflation data disappoints

13 Oct, 2017

US consumer prices recorded their biggest increase in eight months in September as gasoline prices soared in the wake of hurricane-related production disruptions at oil refineries in the Gulf Coast area, but underlying inflation remained muted.

Excluding the volatile food and energy components, consumer prices gained 0.1 percent in September.

"There is really no fig leaf to cover up this notion that inflation is weak, and it's weak in a very broad sense," said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York. "The Fed has pointed to inflation bouncing back, and there is no data to support that at the moment."

Benchmark 10-year notes gained 11/32 in price to yield 2.286 percent, the lowest since Sept. 27 and down from 2.323 percent on Thursday.

Minutes from the Federal Reserve's September meeting released on Wednesday showed policymakers had a prolonged debate about the prospects of a pickup in inflation and the path of future interest rate rises if it did not.

Ten-year yields had jumped to 2.402 percent on Oct. 6, their highest level since May 11, after the government's employment report for September showed a rise in wages that boosted expectations for rising inflation.

Analysts, however, have said that data was muddied by recent hurricanes. Adverse weather is seen as impeding lower-income people from getting to work more than it did higher-income employees.

Other data on Friday showed US retail sales recorded their biggest increase in 2-1/2 years in September, probably as reconstruction and cleanup efforts in areas devastated by Hurricanes Harvey and Irma boosted demand for building materials and motor vehicles.

 

 

 

 

Copyright Reuters, 2017
 

 

 

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