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Government Bonds Strengthen After Consumer Price Data

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10/13/2017 | 06:03pm CEST
By Gunjan Banerji 

U.S. government bonds were stronger early Friday as investors responded to softer-than-expected inflation data.

The yield on benchmark 10-year Treasury note was 2.289% in recent trading, according to Tradeweb, compared with 2.323% on Thursday. Yields fall as bond prices rise.

The consumer-price index, a measure of what Americans pay for everything from haircuts to food, recorded its largest monthly gain since January, edging up 0.5% in September from the month earlier, the Labor Department said Friday. However, economists surveyed by The Wall Street Journal had expected a 0.6% gain. Core prices, which exclude volatile food and energy costs, rose just 0.1%--below the 0.2% that economists surveyed by The Journal had forecast.

Treasurys tend to rally on soft inflation data because inflation is a main threat to government bonds, eroding the purchasing power of their fixed payments.

"I think the core CPI numbers were a little disappointing," said Nick Tripodes, a portfolio manager at Federated Investors Inc.

Investors are also faced with uncertainty regarding how a number of U.S. policies will play out, potentially driving investors toward Treasurys before the weekend, said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. President Donald Trump is also nearing a decision on whom to pick to lead the Federal Reserve and recently met with Stanford University economist John Taylor.

Still, Mr. Tripodes and Ms. Jones see the Fed adhering to one more rate increase this year.

A measure of retail sales also rebounded in September, driven by car sales and higher gasoline prices. Sales at restaurants, retail stores and online-shopping platforms ticked up 1.6% in September from the prior month, the Commerce Department said Friday, its largest one-month increase since March 2015.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

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