Treasury yields fall as CPI posts a slight decline as expected

Treasury yields fell on Thursday as investors digested a key inflation report that showed a small decline in price pressures.

The yield on the benchmark 10-year was down by about 13 basis points at 3.427%. The 2-year Treasury yield was trading nearly 10 basis points lower at around 4.13%.

Yields and prices move in opposite directions and one basis point equals 0.01%.


The consumer price index, which measures the cost of a broad basket of goods and services, fell 0.1% for the month, in line with the Dow Jones estimate. That equated to the largest month-over-month decrease since April 2020, as much of the country was in lockdown to combat Covid.

Excluding volatile food and energy prices, co-called core CPI rose 0.3%, also meeting expectations. It was up 5.7% from a year ago, once again in line.

"The rate of year-over-year inflation moderated roughly in-line with expectations but remains historically high," said Phillip Neuhart, director of market and economic research at First Citizens Bank Wealth Management. "Considering this report, the Federal Reserve will likely continue to tighten monetary policy, potentially at a slower pace."

That's the last CPI reading before the Fed's next meeting on Jan. 31 and Feb. 1, which will conclude with the central bank's latest interest rate decision. Fed officials have hinted that future policy could be affected by new inflation figures.

With persisting uncertainty about whether the Fed will hike rates by 25 or 50 basis points next, investors are hoping to gain new clues from Thursday's CPI data.

After implementing four consecutive 75 basis point rate increases, the central bank slightly slowed the pace of rate hikes to 50 basis points at its last meeting. Many are hoping that the Fed will continue to slow, or completely pause, rate hikes as concerns about their pace dragging the U.S. economy into a recession have spread.

"Today's CPI reading is another sign that inflation is heading in the right direction and indicates the peak is likely in the rear view," said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. "Though we aren't out of the woods yet as it is still well-above the Fed's target rate and the Fed has remained adamant that they will keep rates high to bring inflation back to normal levels."