Yields jump on stronger-than-expected inflation data, weak Treasury auction

Treasury yields jumped on Thursday after the release of U.S. inflation data that topped economist expectations along with a bonds sale that saw weak demand.

The benchmark 10-year yield rose to 2.13% while the 2-year rate climbed to trade at 1.182%. Bond yields move inversely to prices.


U.S. consumer prices rose by 0.1% last month, the Labor Department said. Economists polled by Reuters expected a flat inflation reading. Core inflation, meanwhile, climbed 2.1% in the 12 months through June. 

Andrew Hunter, senior U.S. economist at Capital Economics, is not too worried about a surge in inflation yet, however. "Higher tariffs could yet put some further upward pressure on core goods prices over the coming months but, with growth in unit labour costs slowing, we still think core CPI inflation will remain muted," he said.

Yields extended their gains, however, after a Treasury Department 30-year bond auction saw weak demand. The department sold $34 billion worth of 30-year bonds. The bid-to-cover ratio, a measurement of demand, came in at 2.13. That's well below its 12-month average of 2.27.

Earlier in the day, yields traded lower after comments from Federal Reserve Chairman Jerome Powell supported the case for an interest rate cut later this month.

Testifying in front of the House Financial Services Committee, Powell pointed to "broad" global weakness that was clouding the U.S. economic outlook. His comments bolstered the case for easier monetary policy in the world's largest economy.

In addition to Powell's relatively dovish testimony, the minutes from the Fed's previous policy showed many policymakers thought more policy stimulus would be required soon. Powell is scheduled to testify in front of Senate members on Thursday.