Treasury Curve Steepens as CPI Data Take Pressure Off Fed to Act
(Bloomberg) -- The Treasury yield curve steepened as the weaker-than-expected increase in consumer prices took the pressure off the Federal Reserve to begin paring its stimulus soon.
Long-term Treasury yields expanded their gap above those with shorter maturities as the inflation report pushed off bets on the start of the Fed’s asset-purchase tapering. That also put rate hikes further off traders’ radar.
The gap between 5- and 30-year yields expanded to as high as 112.2 basis points, and is well below a six-year peak of about 167 basis points reached in February. Five-year yields edged lower to about 0.80%, while 30-year yields were at about 1.90%.
The consumer price index had the smallest advance in seven months in August -- suggesting that some of the upward pressure on inflation is beginning to wane.
“The easing of some of the so-called ‘transitory’ items in the inflation index will bolster the Federal Reserve’s argument that inflation will eventually move closer to their 2% objective,” Greg McBride, chief financial analyst at Bankrate.com said in a note. “Based on the inflation numbers, don’t expect any immediate urgency to taper asset purchases.”
Fed policy makers meet on Sept. 22 to consider when to start reducing asset purchases, and to update their quarterly forecasts for when to raise policy rates.
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