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Bond Report: 30-year Treasury yield climbs to two-week high as attention turns to Thursday’s inflation data

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Treasury yields traded mixed on Wednesday as investors absorbed incoming midterm-election results and braced for October’s consumer-price index on Thursday.

What’s happening

The yield on the 2-year Treasury
TMUBMUSD02Y,
4.604%

declined 4.4 basis points to 4.628% from 4.672% on Tuesday. Wednesday’s level is the lowest in a week, based on 3 p.m. figures from Dow Jones Market Data.

The yield on the 10-year Treasury
TMUBMUSD10Y,
4.089%

advanced 2.4 basis points to 4.149% from 4.125% as of Tuesday afternoon. The yield is up seven of the past nine trading sessions.

The yield on the 30-year Treasury
TMUBMUSD30Y,
4.260%

rose 5.8 basis points to 4.317% from 4.259% late Tuesday. Wednesday’s level is the highest since Oct. 24.

What’s driving markets

Treasury yields were mixed on Wednesday as traders turned their attention to Thursday’s October consumer-price index and digested incoming results from Tuesday’s midterm elections, which were still too close to call.

Stock Market Today: Live coverage of Monday’s market action

With the final outcome of the U.S. Senate race still possibly weeks away, analysts said gridlock in Washington nonetheless appears to be the most likely outcome, given the likelihood that Republicans will take control of the U.S. House.

Meanwhile, investors are hoping that October’s CPI report will show signs of inflation easing and will enable the Federal Reserve to consider slowing its pace of interest-rate increases. Economists surveyed by The Wall Street Journal expect the annual headline inflation rate to come in at 7.9%, down from 8.2% in September, and the core monthly CPI reading which strips out food and energy to ease to 0.5% from 0.6% last month.

Read: Financial markets cling to hope that inflation is easing ahead of October’s CPI data

Markets are pricing in a 57% probability that the Fed will raise interest rates by 50 basis points to a range of 4.25% to 4.50% on Dec. 14, and a 43% chance of a bigger 75-basis-point hike.

Overseas, data showed China’s consumer inflation eased in October, while factory-gate prices fell from a year ago for the first time in two years.

Treasury’s $35 billion auction of 10-year notes on Wednesday was described by Peter Boockvar, chief investment officer of Bleakley Financial Group, as “absolutely awful.”

What analysts are saying

“Tomorrow’s CPI report will return immediate focus to US fundamentals,” said Jim Vogel, executive vice president at FHN Financial in Memphis. “Rather than analyze the headline and the core, we are paying most attention to total price inflation less energy (volatile) and housing costs, that are measured with notable lags.  It is important to include food – missing from the core, of course – because 2022 demonstrates little correlation between food costs and raw commodities.  Stubborn food inflation this fall is critical to the direction of Fed policy early next year.” 

Personal Finance Daily: With Senate results too close to call, food-aid programs for low-income Americans hang in the balance, and mortgage refinancing demand falls to lowest level since 2000

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