By Daniel Kruger
U.S. government bond prices rose Tuesday after data showed the pace of inflation slowed and average weekly earnings decreased in December.
The yield on the benchmark 10-year Treasury note fell for the third time in the past four trading sessions, settling at 1.817%, according to Tradeweb, from 1.846% Monday.
Yields, which fall when bond prices climb, declined after the Labor Department said Tuesday that the consumer price index, which measures the costs of goods ranging from fish tanks to paint brushes, rose a seasonally adjusted 0.2% in December from the month before, down from a 0.3% increase in November.
The lack of consistent upward pressure on prices is good for government bonds, because muted inflation keeps interest rates stable and maintains the purchasing power of their fixed interest and principal payments. The data offers a sign bonds could continue to hold value even as worries about the economy fade.
The bond market's forecast for the average rise in consumer prices for the next 10 years, known as the break-even rate of inflation, fell modestly to roughly 1.8%. That's based on the difference between yields on Treasury Inflation-Protected Securities and government debt maturing in a decade.
That measure rose in recent months, along with other economic indicators, as the economy regained its footing. Investor expectations for inflation fell over the summer amid concerns that the risks of a recession were rising as President Trump surprised investors by raising tariffs against China and reports suggested manufacturing output was decreasing.
The softer data "stuck a small pin into any sense of momentum from the end of last year," said Jim Vogel, head of interest-rate strategy at FHN Financial.
The softer inflation data could make it more likely that the Fed holds rates steady or lowers them this year, analysts said.
Federal-funds futures, which investors use to bet on the pace of central bank interest-rate policy, show about seven-in-eight investors expect the Fed won't raise rates through June, little changed from Monday.
The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, declined less than 0.1% to a recent 90.30.
Write to Daniel Kruger at Daniel.Kruger@wsj.com