Treasuries Close Notably Lower Following Late-Day Weakness

Treasuries showed a lack of direction throughout much of the session on Thursday before coming under pressure late in the trading day.

Bond prices moved to the downside in the final hours of the day after spending most of the session near the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 6.8 basis points to 4.080 percent.

Treasuries seemed to come under pressure after the Treasury Department announced the results of this month’s auction of $23 billion worth of thirty-year bonds even though the sale attracted modestly above average demand.

The thirty-year bond auction drew a high yield of 4.189 percent and a bid-to-cover ratio of 2.42, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.37.

The choppy trading seen earlier in the came after the Labor Department released a report showing the annual rate of consumer price inflation accelerated by slightly less than expected in the month of July.

The report said the annual rate of growth by consumer prices accelerated to 3.2 percent in July from 3.0 percent in June, while economists had expected the pace of price growth to accelerate to 3.3 percent.

The Labor Department also said its consumer price index rose by 0.2 percent on a monthly basis in July, matching the uptick seen in June as well as expectations.

Excluding food and energy prices, core consumer prices also rose by 0.2 percent for the second straight month in July, in line with estimates.

Meanwhile, the annual rate of growth by core consumer prices slowed to 4.7 percent in July from 4.8 percent in June. The rate of growth was expected to be unchanged.

While the data reinforced expectations the Federal Reserve will leave interest rates unchanged next month, economists suggested “sticky” core inflation could leave the door open for the Fed to resume raising rates in November.

“Core inflation stickiness is untangling, but for the Fed to declare victory on inflation, it is imperative that it unwinds at a faster and more decisive pace,” said Quincy Krosby, Chief Global Strategist for LPL Financial.

She added, “The Fed’s dove versus hawk tug-of-war appears now to be predicated on an ‘insurance’ rate hike, which according to the hawks will help keep inflation expectations anchored.

A separate Labor Department report on producer price inflation may attract attention on Friday along with the University of Michigan’s preliminary reading on consumer sentiment in August, which includes readings on inflation expectations.

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