Treasuries Move Notably Lower After Seeing Initial Strength

(RTTNews) - Treasuries moved to the upside early in the trading day on Friday but came under considerable selling pressure over the course of the session.

Bond prices pulled back well off their early highs and firmly into negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.5 basis points to 4.343 percent after hitting a low of 4.261 percent.

Treasuries initially benefited from a positive reaction to a Commerce Department report showing readings on consumer price inflation in the month of May came in line with economist estimates.

The report said the personal consumption expenditures (PCE) price index came in unchanged in May after rising by 0.3 percent in April, while the annual rate of growth slowed to 2.6 percent from 2.7 percent.

The core PCE price index, which excludes food and energy prices, inched up by 0.1 percent in May after climbing by an upwardly revised 0.3 percent in April.

The annual rate of growth by core prices also slowed to 2.6 percent in May from 2.8 percent in April, in line with economist estimates.

While the data initially generated renewed optimism about the outlook for interest rates, buying interest waned over the course of the session.

Treasury subsequently turned lower as some analysts pointed out that pace of consumer price growth remains well above the Federal Reserve's 2.0 percent target and suggested the latest data is not likely to convince the central bank to accelerate its plans to lower rates.

"While an improvement from trends earlier this year, the elevated inflation readings in yesterday's revised GDP data indicate persistent pricing pressures," said John Lynch, Chief Investment Officer for Comerica Wealth Management.

"The expected number of rate cuts for this year have steadily declined, but traders continue to ignore the Fed's higher for longer stance," he added. "Since the fed funds rate remains higher than nominal GDP growth, we believe the Fed will need to cut 1-2 times over the next six months. Any hope for further accommodation, absent recession, is likely misguided."

The monthly jobs report is likely to be in the spotlight next week, although remarks by Fed Chair Jerome Powell may also attract attention along with reports on manufacturing and service sector activity.

Nonetheless, overall trading activity may be somewhat subdued due to the Independence Day holiday next Thursday.