10-year yield falls after consumer price index increases slightly less than expected

U.S. Treasury yields retreated on Tuesday after a key inflation report showed a slightly smaller-than-expected rise in prices.

The yield on the benchmark 10-year Treasury note fell 4.7 basis points to 1.277% at 4:02 p.m. ET. The yield on the 30-year Treasury bond slid 5.5 basis points at 1.849%. Yields move inversely to prices and 1 basis point is equal to 0.01%.


The consumer price index showed a 5.3% year-over-year increase for August, slightly below the consensus estimate of 5.4% from Dow Jones. Core CPI, which excludes volatile food and energy prices, rose just 0.1% month over month, coming in below expectations of 0.3%.

"With the inflation read coming in lighter than expected, there's a glimmer of hope that prices are finally beginning to normalize, but we're far from fully out of the woods when it comes to supply chain issues and raw material shortages," E*TRADE Financial's Mike Loewengart said.

Inflation data is being closely watched by the Federal Reserve as it considers when to start tightening monetary policy. The Fed is due to kick off its latest two-day policy meeting next Tuesday.

BMO Global Asset Management's Steven Bell said on Tuesday that he expected the Fed to confirm plans to start tapering bond purchases at the end of the year.

He said this was now priced into markets, so expected attention to turn to when the Fed would start hiking interest rates, which depended on inflation and employment data.

"Figures out this week may show that inflation has cooled a bit in month-on-month terms but it remains well above the 2% target, it's employment that is holding the Fed back from pulling the trigger on a rate rise," Bell said.

Nonfarm payrolls grew by just 235,000 in August, well below expectations of 720,000 new positions.