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Jun 12, 2024

TREASURIES

(Adds analyst comment, 30-year auction results, updates prices) * U.S. Sept headline CPI rises; core comes in line with forecasts * U.S. rate futures price in higher odds of December hike * U.S.

(Adds analyst comment, 30-year auction results, updates prices) * U.S. Sept headline CPI rises; core comes in line with forecasts * U.S. rate futures price in higher odds of December hike * U.S. 30-year auction shows weak demand By Gertrude Chavez-Dreyfuss NEW YORK, Oct 12 (Reuters) - U.S Treasury yields advanced on Thursday after data showing consumer prices in the world's largest economy came in higher than expected, suggesting that the Federal Reserve could raise interest rates one more time this year. An auction of U.S. 30-year bonds showing poor demand also sent Treasury yields higher. "The CPI (consumer price index) report put another hike this cycle on the table. That contributed to the movement on the short end of the curve," said Will Compernolle, macro strategist at FHN Financial in New York. "The long end of the curve was moved by the weak 30-year auction. It was the third consecutive auction this week that tailed, that showed some weakness, reinforcing the yields' upward momentum." The U.S. Treasury's 30-year sale stopped at 4.837%, up a hefty 3.7 basis points (bps) from the expected rate at the bid deadline, suggesting investors demanded a premium to take the long-term bond. The bid-to-cover ratio was a soft 2.35, down from last month's 2.46 and the 2.39 average. The weak 30-year auction followed lackluster sales of 10-year and three-year notes this week. U.S. yields started their ascent after data showed consumer prices increased in September due to higher costs for rent and gasoline, although underlying inflation matched the gain in August, data showed. The consumer price index increased 0.4% last month, compared with expectations for a 0.3% rise. The CPI jumped 0.6% in August, which was the largest gain in 14 months. Excluding the volatile food and energy components, the CPI rose 0.3%, in line with forecasts. The core CPI gained 4.1% year-on-year in September after advancing 4.3% in August. Post-inflation data, U.S. rate futures continued to price in the fact that the Fed will hold interest rates steady next month, but the chances of a rate hike grew increased to 34% in December, from about 28% late on Wednesday, according to the CME's FedWatch tool. "Overall, there is probably not enough in the report alone to suggest to the FOMC that it needs to be tightening policy again in November, but it will see it as justifying its message that policy needs to remain 'tighter for longer,' with the prospect of another rate rise still being kept on the table," said Stuart Cole, chief macro economist, at Equiti Capital. In afternoon trading, U.S. benchmark 10-year yields were last up 10.2 bps at 4.699%, after hitting two-week lows of 4.53% earlier in the session. U.S. two-year yields, which reflect interest rate expectations, rose 6.4 bps to 5.068%. The yield curve steepened or narrowed its inversion on Thursday, with the spread between two-year and 10-year yields compressing to as much as -34.20 bps. It was last at -37.40 bps. The steeper curve suggested concerns about inflation creeping back in, prompting investors to sell long-dated Treasuries. An inverted yield curve is seen as a precursor to recession. Analysts said the curve has inverted in eight of the last nine U.S. recessions. October 12 Thursday 3:39PM New York/1939 GMT Price Current Net Yield % Change (bps) Three-month bills 5.3475 5.5103 0.007 Six-month bills 5.34 5.5788 0.018 Two-year note 99-223/256 5.0687 0.064 Three-year note 99-100/256 4.8458 0.074 Five-year note 99-180/256 4.6923 0.087 Seven-year note 99-104/256 4.7257 0.099 10-year note 93-144/256 4.699 0.102 20-year bond 91-136/256 5.0556 0.113 30-year bond 88-132/256 4.8575 0.121 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Siddarth S in Bengalaru; Editing by Alex Richardson and Jonathan Oatis)