Stock Investors Regaining Confidence Despite Sharp Rise in Treasury Yields

U.S. Treasury yields rose on Thursday as investors continued to react to Wednesday’s better-than-expected consumer inflation report. Additionally, yesterday’s slew of upbeat economic data also provided more evidence of increasing inflationary pressure.

During the session, the 2-year U.S. Treasury yield reached an eight-year high at 2.213 percent, surpassing the September 2008 high of 2.217. The yield on the 10-year U.S. Treasury Note hit another four-year high of 2.944 percent.

The 5-year Treasury Note yield also hit a high, touching 2.687 percent, its highest level since April 2010 when the 5-year yielded as high as 2.702 percent. The 30-year Treasury Bond also turned in an impressive session, closing off its session highs near 3.155 percent.

U.S. Economic Data

One day after the Labor Department said the consumer price index increased 0.5 percent in January, against forecasts of a 0.3 percent rise and the CPI was up 0.349 percent against estimates of 0.2 percent, the largest gain for the gauge since March 2005, the government reported that the Producer Price Index increased 0.4 percent last month, with core PPI – excluding volatile food and energy prices – also up 0.4 percent. The number was higher than the 0.2 percent estimate.

In other news, the number of Americans filing for unemployment came in at 230K, slightly above the 229K forecast, and higher than last week’s 45-year low.

The Empire State Manufacturing Index came in below expectations at 13.1. Traders were looking for a reading of 17.7. The Philly Fed Manufacturing Index, however, came in higher than the 21.5 estimate at 25.8.

Capacity Utilization came in slightly below the 78.0% estimate at 77.5%. Industrial Production was also below the forecast at -0.1%.

U.S. Equity Indexes

The major U.S. equity indexes settled sharply higher on Thursday despite a volatile two-sided trade. The move extended the five day winning streak and indicated that momentum may be shifting back to the upside after last week’s steep sell-off.

In the cash market, the benchmark S&P 500 Index settled at 2731.20, up 32.57 or +1.21%. The blue chip Dow Jones Industrial Average closed at 25200.37, up 306.88 or 1.23% and the tech-based NASDAQ Composite finished at 7251.28, up 107.66 or +1.48%.

Earlier in the week, the indexes pulled out of their 10% correction zones that they reached last week. The Dow and S&P 500 rallied above their 50-day moving averages, indicating investor confidence may be returning.

Investors are also paying more attention to earnings and individual stocks instead of primarily inflation and rising interest rates.