(Bloomberg) — US Treasuries rose for the first time in a week after lower-than-estimated producer prices data soothed fears that tariff-stoked inflation will push back Federal Reserve interest rate cuts.
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Yields dipped across maturities, led by long-dated bonds with the 30-year’s dropping two basis points to around 5%. It crossed that level on Tuesday for the first time since early June.
The producer price index for June was unchanged from upwardly revised May levels, adding a new wrinkle to the inflation outlook. Traders slightly added to bets that the Fed will start to cut rates in September, with interest-rate swaps showing the chance of a reduction around 54%. A quarter-point cut by October is fully priced in.
“Right now, any signs of inflation being tame is a welcome relief for the long-end of the curve,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. :The pain trade trade feels like for lower yields in the long-end.”
Data released Tuesday had stoked fears that President Donald Trump’s trade tariffs were already seeping into some categories of consumer prices. The Treasuries market fell, extending declines that began last week and pushing yields on some tenors to the highest levels in weeks.
Tuesday’s numbers were “optically better than expected,” he said, but the details showed “the tariff effect had started to creep in,” said Mohit Kumar, Jefferies International chief European strategist.
Later on Wednesday, the Fed’s July Beige Book survey of regional business contacts will offer a snapshot of economic activity.
There are signs inflation is reviving in other developed markets.
In the UK, traders scaled back wagers on Bank of England interest-rate cuts on Wednesday after headline inflation in June come in hotter than expected.
Gilts fell across the curve and the pound rose 0.1% to $1.34, set to snap a eight day losing run.
–With assistance from Isabella Ward.
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