Ten-Year Spikes Above 4.5% Following Hotter-Than-Expected Inflation Data

(RTTNews) - Following the notable rebound seen in the previous session, treasuries showed a substantial move back to the downside during trading on Wednesday.

Bond prices fell sharply early in the session and saw further downside as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, soared 19.4 basis points to 4.560 percent.

The ten-year yield more than offset the 5.8 basis point drop seen on Tuesday, closing above 4.50 percent for the first time since mid-November.

The sell-off by treasuries came following the release of a Labor Department report showing U.S. consumer prices advanced by slightly more than expected in the month of March.

The Labor Department said consumer prices climbed by 0.4 percent in March, matching the increase seen in February. Economists had expected consumer prices to rise by 0.3 percent.

Excluding prices for food and energy, core consumer prices still rose by 0.4 percent for the third consecutive month. Core consumer prices were also expected to increase by 0.3 percent.

The report also said the annual rate of consumer price growth accelerated to 3.5 percent in March from 3.2 percent in February. Economists had expected a more modest acceleration to 3.4 percent.

Meanwhile, the annual rate of core consumer price growth came in at 3.8 percent in March, unchanged from February. Core price growth was expected to slow to 3.7 percent.

The data added to recent worries the Federal Reserve will hold off on lowering interest rates amid ongoing inflation concerns. Fed officials have repeatedly said they need greater confidence inflation is slowing before they consider cutting rates.

Following the release of the data, the chances of a rate cut in June have plunged to just 16.5 percent, according to CME Group's FedWatch Tool.

The minutes of the central bank's latest monetary policy meeting, released later in the day, revealed Fed officials were already not convinced inflation is moving sustainably down to 2 percent after January and February readings on core and headline inflation had been firmer than expected.

Treasuries saw further downside after the Treasury Department report below average demand for this month's auction of $39 billion worth of ten-year notes.

The ten-year note auction drew a high yield of 4.560 percent and a bid-to-cover ratio of 2.34, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.51.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Additional inflation data may impact trading on Thursday, as the Labor Department is due to release its report on producer price inflation in the month of March.