US bond prices fall

US Treasuries prices fell for second day on Wednesday as data showed a mild rebound in domestic consumer prices in September, reducing some bets the Federal Reserve might delay possible plans to raise policy rates in 2015. Worries about disinflation at home and deflation in Europe have stoked expectations that US policymakers will stick with a near-zero interest rate policy for a longer period of time in an effort to support a subpar economic recovery.
The Federal Open Market Committee will meet next Tuesday and Wednesday. The US Labor Department said its Consumer Price Index (CPI), the government's broadest inflation gauge, edged up 0.1 percent last month after falling 0.2 percent in August. Economists polled by Reuters had forecast a flat reading in September. "It's a bit encouraging that there's some healthy inflationary pressure in the economy," said Jennifer Vail, head of fixed income research at US Bank Wealth Management in Portland, Oregon.
Top Fed officials have maintained a 2 percent goal on domestic inflation. This less dire view on inflation spurred selling in Treasuries, sending benchmark yields to their highest in a week near 2.25 percent and 30-year yields above 3 percent in early US trading. A week ago, the 10-year yield tumbled to a 16-month low of 1.865 percent in volatile trading as anxiety about global growth triggered a stampede of Treasuries buying to exit short bets against them.
The September CPI report also helped Treasury Inflation-Protected Securities, whose principal and interest payments are adjusted against the CPI. The yield gaps between TIPS and regular Treasuries, or inflation breakeven rates, have widened from their narrowest levels since 2011 set during last week's market sell-off. The 10-year TIPS breakeven rate, a measure of investors' longer-term inflation expectations, ended little changed on the day at 1.91 percent after rising to 1.94 percent earlier.
"There's nothing here to fan the flame about inflation or disinflation. We didn't get a huge rebound here," said Com Crocker, managing director of government and agency securities trading at Mesirow Financial in New York, said of the September CPI data. Interest rates futures suggested traders briefly priced in a 44 percent chance the Fed might raise rates in September 2015 before dialing back to 40 percent, according to CME FedWatch. They had priced in a 42 percent chance on Tuesday.
The recovery in TIPS faces near-term resistance as the Treasury Department intends to sell $7 billion in 30-year TIPS at 1 pm (1700 GMT) on Thursday. On the open market, benchmark 10-year Treasuries were 7/32 lower in price with a yield of 2.232 percent, up 2 basis points from Tuesday's close. The 30-year Treasuries bond was down 11/32 in price, yielding 3.004 percent, up 2 basis points from late Tuesday.