Bonds Shed CPI-Spurred Gains as Stocks Curb Safety Bid


Treasury debt prices shed earlier gains Wednesday as sharply rising stocks curbed the safe harbor bid for government securities.

The benchmark 10-year Treasury note's price, which moves inversely to its yield, traded flat for a yield of 3.91 percent, versus 3.91 percent late Tuesday.

The Dow Jones industrial average and the Nasdaq Composite each rose 1 percent.

"The gains are being capped by the rise in stocks," said Jessica Hoversen, fixed income market analyst at MF Global Research.

Longer-maturity government debt prices rose earlier after as a modest rise in consumer price inflation mildly appeased bond market concerns about surging inflation.

Longer-dated fixed income securities are sensitive to inflation expectations that erode bond values over time. Global food prices continue to hit records while U.S. light, sweet crude oilrose to a record high near $127 a barrel this week.

The April headline Consumer Price Indexrose 0.2 percent on the month, below economists' consensus forecast for a rise of 0.3 percent.

The tame consumer inflation data briefly revived some expectations for the Federal Reserve to cut interest rates by a quarter percentage point at its next policy meeting in June.

Interest rate futures trimmed losses fleetingly, with nearby contracts showing a 10 percent implied chance of a rate cut in June, up from 6 percent shortly before the data.

But a Fed official warned on Wednesday that the toxic mix of surging food and energy prices along with further house price declines and a slipping job market posed economic risks that could take more of a toll on financial institutions.

"We have seen job losses, persistent increases in food and energy prices, and falling asset prices all increasing the risk that less benign economic circumstances will add to the already intense challenges faced by financial institutions this year," said Boston Fed President Eric Rosengren.

Rate futures still suggest the Fed would raise the benchmark federal funds target rate by a quarter point by year-end to 2.25 percent.