Treasury Yields Dip Despite Concerning Inflation Data

Treasury yields pulled back on Thursday even after another inflation report pointed to hotter-than-expected price pressures.

The 10-year Treasury yield fell 8 basis points to 4.554%. The 2-year Treasury yield dipped 4 basis points to 4.321%.

One basis point equals 0.01%. Yields and prices move in opposite directions.

Data Thursday showed the producer price index, which measures what producers get for their goods and services, increased by a seasonally adjusted 0.4% in January. Economists polled by Dow Jones anticipated a 0.3% advance. Excluding food and energy, core PPI was up 0.3%, in line with the forecast.

Investors might be focused on a few underlying details in the report that showed an easing in prices.

Despite the hotter number on the surface, the January PPI report and consumer price index data point to a softer PCE price index than traders feared. That PCE measure, which will be released in February, is what the Federal Reserve closely tracks.

“The PPI for Jan ran hot on the headline, but some of the details were dovish,” Adam Crisafulli, founder of Vital Knowledge, said in a note. “After the hot CPI on Wed, people are viewing the PPI as a welcome surprise.”

Treasury yields had jumped on Wednesday after a hot consumer inflation report. The consumer price index rose 0.5% on a monthly basis in January and 3% from a year earlier. Economists surveyed by Dow Jones had been expecting increases of 0.3% and 2.9%, respectively.

So-called core inflation, which excludes food and energy costs, rose 0.4% for the month and 3.3% on an annual basis. That was also higher than the expected 0.3% monthly rise and the 3.1% year-over-year increase.

“Bottom line, persistent inflation is apparent even before tariffs but taking some of the healthcare components that flow into PCE and that were benign is why bonds are rallying,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.

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