The US Treasury yield curve flattened on Wednesday with yields on shorter-dated maturities little changed while yields on longer-dated ones fell as US producer prices and industrial output data showed inflation could be growing more slowly than expected.
Yields on Treasury notes with maturities from 2 to 7 years rose to their highest since early January in morning North American trading. But they later reversed those moves, turning flat after the release of the data. US producer prices and industrial production both flatlined unexpectedly in October as a rise in the cost of goods was offset by declining services costs, and industrial production was weighed down by lower utilities output.
Benchmark 10-year Treasury notes rose 4/32 in price to yield 2.224 percent. The 30-year bond rose 26/32 in price to yield 2.931 percent, moving further from its 2016 high of 3.067 percent touched on Monday. Conversely, 2-year Treasury notes were little moved in price to yield 1.01 percent. Yields on the 2-year note earlier hit 1.03 percent, the highest since January 4.
The reversal in prices was a result of the weak data that suggested US inflation could be slowing and perhaps the bond selloff of the past week has been overdone, analysts said. Inflation erodes the value of already-issued bonds. "The easy answer is that Treasuries are reacting to the lower-than-expected inflation from the producer prices report and lower industrial production," said Lou Brien, market strategist at DRW Trading in Chicago.
On the significant move higher in price for the 30-year bond that flattened the yield curve, Brien said the market was likely reacting to the stronger selling that longer-dated maturities have seen since the US presidential election. "If there is any market that is oversold it's the long end," Brien said. "So it's entitled to breathe once in a while."
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