Treasuries See Further Upside As Inflation Data Adds To Rate Cut Optimism

(RTTNews) - Extending the upward trend seen over the past several sessions, treasuries moved to the upside during trading on Wednesday.

Bond prices moved higher early in the session and remained in positive territory throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell 3.2 basis points to 3.820 percent.

With the decrease, the ten-year yield closed lower for the fourth consecutive session.

Treasuries continued to benefit from optimism about the outlook for interest rates after the Labor Department released its highly anticipated report on consumer price inflation in the month of July.

The Labor Department said its consumer price index rose by 0.2 percent in July after edging down by 0.1 percent in June. The modest increase by consumer prices matched expectations.

Core consumer prices, which exclude food and energy prices, also crept up by 0.2 percent in July after inching up by 0.1 percent in June. The uptick by core consumer prices was also in line with economist estimates.

Meanwhile, the report said the annual rate of consumer price growth slowed slightly to 2.9 percent in July from 3.0 percent in June. Economists had expected the pace of growth to remain unchanged.

The annual rate of core consumer price growth also slipped to 3.2 percent in July from 3.3 percent in June, in line with expectations.

"Investors and policymakers alike will find this report mostly good for markets and the economy," said Jeffrey Roach, Chief Economist for LPL Financial. "As inflation decelerates, the Fed can legitimately cut rates yet keep policy restrictive overall."

"Unless the global economy experiences another shock, the Fed will most likely cut rates by a quarter percent in September," he added. "The probability of the Fed cutting by a half percent is still elevated since investors are still somewhat skittish from recent events."

CME Group's FedWatch Tool is currently indicating a 64.5 chance the Fed will lower rates by a quarter point and a 35.5 percent chance of a half point rate cut.

Trading on Thursday is likely to be impacted by reaction to a slew of U.S. economic data, including reports on weekly jobless claims, retail sales and industrial production.