Demand for Treasuries was also stoked by bargain-minded investors after a lukewarm reception this week to the $62 billion sale of three-year, 10-year and 30-year government debt, analysts and traders said. "With the CPI report today, the market is concerned about inflation," said Thomas Roth, head of Treasury trading at MUFG Securities America in New York.
The Consumer Price Index grew 2.2 percent on a 12-month basis through April, slower than March's 2.4 percent gain. This raised concerns the core rate of personal consumption expenditure would take longer than previously thought for inflation to reach the Fed's 2-percent goal. The core PCE, the Fed's preferred inflation gauge, increased 1.6 percent on a year-over-year basis in March. The benchmark 10-year Treasury yield fell 7 basis points to 2.329 percent. On Thursday, it reached 2.423 percent, a near six-week peak, in reaction to data showing a surprisingly strong jump in US producer prices in April.
US yields rose broadly earlier this week on heavy government and corporate bond supply. In addition, centrist Emmanuel Macron's presidential win in France last Sunday spurred investors to reduce their safe-haven bond holdings, propelling yields to their highest level since March on Thursday.
Last month's below-forecast retail sales and consumer price figures did not alter expectations that the Federal Reserve may raise interest rates at its June 13-14 meeting by a quarter point to 1.00-1.25 percent. "The market thinks a rate hike in June is pretty much a done deal, but a rate hike after that and tapering at the end of year?," Roth said.
Chicago Fed President Charles Evans said on Friday he could be okay with more rate increase in 2017, while the Fed would soon need to begin considering the shrinking of its $4.5 trillion balance sheet. The interest rate futures market implied traders saw a 46 percent chance for two more rate hikes from the Fed by year-end, down from 54 percent before Friday's data, CME Group's FedWatch tool showed.
Copyright Reuters, 2017