By Akane Otani
U.S. government bonds weakened Wednesday after data showed producer prices bounced back in September from a summer slowdown.
The yield on the benchmark 10-year U.S. Treasury note settled at 3.221%, compared with 3.208% Tuesday. Yields rise as bond prices fall.
Treasury yields ticked higher after the Labor Department said the producer-price index, which measures prices that businesses receive for their goods and services, rose a seasonally adjusted 0.2% in September after stalling for two consecutive months. Inflation is a threat to government bonds because it chips away at the purchasing value of their fixed payments.
On the whole, "price pressures are still forming at the lowest level of the production chain, and with the strengthening economic winds and tariffs coming on imported goods, inflation will become a worry for consumer pocketbooks sooner or later," said Chris Rupkey, chief financial economist at MUFG, in a note.
Bond yields then pared their advance as the U.S. stock market came under pressure, sending the S&P 500 toward its fifth consecutive session of declines -- its longest losing streak since November 2016, according to Dow Jones Market Data.
Although some analysts have attributed recent weakness in the stock market to a sharp rise in bond yields, others point out that volatile markets can drive higher demand for Treasurys, which many consider relatively safe assets. That can in turn push bond yields lower again following a brief spike.
"Other asset classes are playing a bit of catch-up," said Jon Hill, U.S. rates strategist at BMO Capital Markets.
Analysts say later this week they will be closely watching data on consumer prices for further signs that inflationary pressures may be building.
Economists surveyed by The Wall Street Journal expect the consumer-price index, which measures what Americans pay for everything from cereal to fares on public transportation, to rise 0.2% in September from the month earlier. With investors on the lookout for data that shows inflation rising, an unexpectedly strong reading could send bond yields jumping, analysts warn.
Still, for now, traders don't appear to be bracing for a surge in inflation.
Market-based measures of inflation expectations, like the 10-year inflation break-even rate, haven't risen nearly as quickly as bond yields over the past week.
"If you thought growth was going to accelerate all of a sudden, you'd probably expect more inflationary pressure," said Mr. Hill. The lack of movement in break-evens suggests investors still have doubts about that happening.
Write to Akane Otani at firstname.lastname@example.org