Bonds

10-year Treasury yield falls as data shows inflation stays subdued

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Long-maturity Treasury yields dropped on Wednesday as investors digested the latest inflation data that showed a small increase.

The yield on the benchmark 10-year Treasury note fell 6 basis points to 1.081%, while the yield on the 30-year Treasury bond slipped 6 basis points to 1.823%. Yields move inversely to prices.

Treasurys

The monthly Consumer Price Index reading for December showed a rise of 0.4% for the headline number, matching expectations according to economists surveyed by Dow Jones. Core CPI, less food and energy, edged up 0.1%, also in line with estimates.

"No traction is seen for inflation with the pandemic worsening and keeping demand in the economy depressed so the inflation genie remains bottled up for now," Chris Rupkey, chief financial economist at MUFG, said in a note.

The rapid move higher in bond yields since the start of the year has been accompanied by rising inflation expectations. Last week, the breakeven rate for 10-year inflation expectations touched 2% for the first time in more than two years.

"With the amount of fiscal government spending and transfer payments, I don't see how we're not going to see too much money chasing too few goods," said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Meanwhile, political turmoil in the U.S. continues to weigh on investors' minds, after Vice President Mike Pence said on Tuesday evening that he would not remove President Donald Trump from office.

House Speaker Nancy Pelosi, D-Calif., said that if the vice president did not act, the chamber would vote Wednesday to make Trump the first president ever to be impeached twice.