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Despite Reports of Higher Inflation, Treasury Yields Finish Week Flat Amid Consumer Sentiment Concerns

By:
James Hyerczyk
Updated: Jul 14, 2018, 13:55 UTC

U.S. Federal Reserve Chairman Jerome Powell said in an interview this week that he believed “the economy’s in a really good place” at the moment with unemployment at the lowest point in nearly two decades and inflation finally approaching the Fed’s optimal goal of 2 percent annual increases.

U.S. Treasury Yields

Despite stronger-than-expected producer and consumer inflation data, 10-Year U.S. Treasury note and 30-Year U.S. Treasury bond yields finished flat last week. Throughout the week, the September futures contracts treaded water until Friday when it moved higher after a report on consumer sentiment revealed that optimism receded to its lowest level in half a year.

On Friday, the yield on the benchmark 10-year Treasury note slipped to 2.83 percent, while the yield on the 30-year Treasury bond fell to 2.93. During the week-ending July 6, the 10-year yield settled at 2.83 percent. The 30-year finished at 2.93 the previous week.

On Wednesday, U.S. government data showed U.S. producers prices increased more than expected in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in 6-1/2 years.

According to the U.S. Labor Department, the producer price index for final demand climbed 0.3 percent last month after rising 0.5 percent in May. That pushed the annual increase in the PPI to 3.4 percent, the largest rise since November 2011, from 3.1 percent in May.

On Thursday, consumer prices rose in June at the highest yearly rate since 2012, reflecting a U.S. economy that’s running hotter than any time since the Great Recession.

In June, the consumer price index increased 0.1%. The monthly increase in the cost of living rose to a 12-month pace of 2.9% from 2.8%, marking the highest level in more than six years, the government said. A year ago, the 12-month rate stood at just 1.6%.

Core CPI advanced 0.2% last month. The yearly increase in the core rate edged up to a more modest 2.3%, the highest benchmark in a year and a half.

While the PPI and CPI data may have helped underpin Treasury yields earlier in the week, Friday’s drop in consumer sentiment pushed yields lower.

According to a report from the University of Michigan, consumer sentiment hit a six-month low, but held near the average print for the prior 12 months. The move was fueled in part by rising fears surrounding a trade war between the United States and its economic partners. Consumer sentiment fell to 97.1, below an estimated 98.2.

Fed Member Comments

U.S. Federal Reserve Chairman Jerome Powell said in an interview this week that he believed “the economy’s in a really good place” at the moment with unemployment at the lowest point in nearly two decades and inflation finally approaching the Fed’s optimal goal of 2 percent annual increases.

Powell also said Fed officials have been hearing a “rising level of concern” from business executives following the tough talk from the Trump administration, which has imposed penalty tariffs on a number of countries in an effort to open markets for U.S. goods.

Finally, in an interview, Powell said he was “very pleased with the results” of the Fed’s gradual pace of rate hikes.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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