Treasury yields hold steady after July CPI

What’s happening

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  was 4.787% versus 4.8% on Wednesday.

• The yield on the 10-year Treasury
  BX:TMUBMUSD10Y
  was 4.007%, marginally lower since Wednesday’s 3 p.m. level of 4.011%.

• The yield on the 30-year Treasury
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  was 4.188%, up 1 basis point from 4.178% late Wednesday.

What’s driving markets

Data released on Thursday showed U.S. consumer prices rose a mild 0.2% in July, though the annual headline rate of inflation rose to 3.2% from 3% previously. It’s the first time in more than a year that the annual headline rate has gone up again, though it was in line with the expectations of traders.

The so-called core rate of inflation, which omits volatile food and energy costs, also rose 0.2% last month. Meanwhile, the increase in core inflation over the past year slowed to 4.7% from 4.8% previously, as expected by economists polled by The Wall Street Journal; that’s the lowest rate in almost two years.

The reaction in the government fixed-income market was muted, with 1- through 30-year Treasury yields down only slightly in the first hour after the CPI report came out.

Thursday afternoon brings Treasury’s $23 billion auction of 30-year bonds, which is set for 1 p.m. Eastern time.

What analysts are saying

“Overall, the underlying details of the July CPI inflation data are consistent with ongoing progress on disinflation,” said Gurpreet Gill, global fixed income macro strategist at Goldman Sachs Asset Management.

“The Fed has emphasized that its September meeting decision will hinge on the totality of data accumulated between now and then,” Gill wrote in an email. “The latest CPI data reinforces our view that July likely marked the peak in the Fed’s hiking cycle, however, we will be closely monitoring the evolution of core PCE inflation and labor market rebalancing to determine whether the disinflation trend is durable.”