U.S. government debt yields slipped on Tuesday even as the Federal Reserve pointed to higher inflation in its most recent meeting on monetary policy.
The U.S. central bank kept interest rates unchanged Wednesday, as was largely expected, but hinted at higher inflation over the coming months.
The committee noted that "overall inflation and inflation for items other than food and energy have moved close to 2 percent." That was an upgrade from the March meeting in which the Federal Open Market Committee said the indicators "have continued to run below 2 percent."
At the latest reading, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 2.948 percent, while the yield on the 30-year Treasury bond was also lower at 3.119 percent.
The bid for bonds could be coming from a number of factors as investors shrug off the central bank's warnings of further price increases throughout the economy.
"Bonds are likely catching a bid because of weaker data, no surprises form the FOMC, trade issues, Presidential issues, a lack of leadership in the equity market and now you see me, now you don't levels of inflation," said Kevin Giddis, head of fixed income capital markets at Raymond James.
"That's what is going to make tomorrow's employment report so important to the markets," he added. "Investors are lined up on each side of the number, but it really comes down to payrolls and average hourly earnings."
The Labor Department will release its latest employment report on Friday, an update that includes key metrics on how many jobs the economy added over the month of April. More importantly, perhaps, will be the change in average hourly earnings, often considered a predecessor of inflation.
Expectations for the report include the addition of 195,000 non-farm jobs added and a month-over-month change in average hourly earnings of 0.2 percent, according to economists polled by Reuters.
The uptick in so-called safe havens like Treasurys and gold prices likely came, in part, due to an announcement by Iran's foreign minister on Thursday, sparking geopolitical tensions.
Mohammad Javad Zarif said that the country will not renegotiate nor ratify any modification to the existing nuclear deal it struck with the U.S. and other world powers as the deadline set by President Donald Trump for European to "fix" the deal loomed.
The announcement comes just days after Israeli Prime Minister Benjamin Netanyahu revealed a cache of files he claims were obtained from Iran and prove the country ran a secret program to build nuclear weapons.
Trump will decide by May 12 whether to renew sanctions waivers on Iran.