Bonds Move Lower

U.S. Treasuries were chopped around Wednesday, paring losses after tumbling to late-December high yield/low price levels on the shorter end while the 10-year hit the lowest since Jan. 27 following a rush of data which increased the odds of a mid-March rate hike. Rising inflation, manufacturing and retail sales data led smack into day 2 of Federal Reserve Chair Janet Yellen’s Congressional testimony. The ongoing rally in equities added fuel to the fire as risk-on trade gains momentum.

The 30-year has stumbled back toward the lows, recently at 3.0964% from an early 3.1078% and a 3.06% close Tuesday. The 10-year is hugging the 2.51% area against a 2.52% low and 2.47% close. The five-year continues to be the most vulnerable, trading near 2.005% from a 2.0195% low and 1.961% close. The two-year is stalled near 1.245% against a 1.279% low and 1.234% close.

The curve trade remains mixed with the yield differential between the two- and 10-years swung along a steeper slope to 1.25 from 1.23 plus Tuesday while the five- and 30-year spread has flattened to 1.09 plus from 1.10.

The market gapped lower on the early run of data with the headline January consumer price index up 0.6%, double the expected 0.3%, mirroring Tuesday’s producer price headline. January retail sales rose 0.4%, with the ex-auto input up 0.8%, versus the 0.1% and 0.5% increases expected. Revisions boosted December’s 0.6% headline to 1.0 and while the 0.2% ex-auto gain to 0.4%.

By Bryan Smith