Treasuries Show Notable Downturn After Seeing Early Strength

After an early move to the upside, treasuries showed a notable downturn over the course of the trading session on Thursday.

Bond prices pulled back near the unchanged line after seeing early strength and saw further downside going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.1 basis points to 3.452 percent after hitting a low of 3.372 percent.

The downturn by treasuries seemed to reflect the rally on Wall Street, with some traders moving money out of the relative safety of bonds and into stocks.

Early in the session, treasuries benefited from a report from the Labor Department showing an unexpected decrease in U.S. producer prices in the month of March.

The Labor Department said its producer price index for final demand fell by 0.5 percent in March following a revised unchanged reading in February.

Economists had expected producer prices to come in unchanged compared to the 0.1 percent dip originally reported for the previous month.

The report also showed the annual rate of producer price growth slowed dramatically to 2.7 percent in March from 4.9 percent in February. Economists had expected the pace of growth to slow to 3.0 percent.

Combined with Wednesday’s tamer-than-expected consumer price inflation data, the report helped ease concerns about inflation and the outlook for interest rates.

“The link between the PPI and CPI is not as clear as it once was, but persistently small increases — or, as in March, an outright decline — will eventually come through to consumers if demand slows enough to prevent companies from taking out the slack in the form of higher margins,” said Chris Low, chief economist at FHN Financial.

He added, “For a Fed already inclined to pause, this report tips the scale just a bit more in favor, especially after yesterday’s CPI failed to reveal any new inflationary problems.”

However, CME Group’s FedWatch Tool is currently still indicating a 67.9 percent chance the Fed will raise rates by a quarter point next month compared to a 32.1 percent chance rates will be left unchanged.

A separate Labor Department report showed first-time claims for U.S. unemployment benefits rose by more than expected in the week ended April 8th.

The report said initial jobless claims climbed to 239,000, an increase of 11,000 from the previous week’s unrevised level of 228,000. Economists had expected jobless claims to rise to 232,000.

A slew of U.S. economic data is scheduled to be released on Friday, including reports on retail sales, industrial production, import and export prices and consumer sentiment.

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