By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices gave up gains Wednesday, pushing short-term yields higher, after a report on the housing sector came in stronger than expected, while another report showed a little more inflation pressure.
Still to come is a Federal Reserve buyback and the release of minutes from the central bank’s latest policy meeting.
Yields on 10-year notes (UST10Y 3.63, +0.02, +0.64%) , which move inversely to prices, lately rose 1 basis point to 3.63%, after earlier falling to 3.59%. A basis point is one one-hundredth of a percent.
Yields on 2-year notes (UST2YR 0.85, +0.03, +3.53%) increased 2 basis points to 0.85%.
Thirty-year bond yields (UST30Y 4.67, +0.01, +0.21%) traded at 4.67%, after slipping to 4.64% earlier.
The Commerce Department said new construction of U.S. housing units rebounded in January to a stronger pace than economists expected. See story on housing starts.
The surprise was due to multifamily starts, which tend to be more volatile, so starts should recede in coming months, strategists at TD Securities said.
A separate report showed producer prices rose 0.8% last month, roughly in line with forecasts. But core prices, excluding food and energy, increased 0.5% — more than expected. Read more on PPI.
“Strong PPI gives one to the inflation hawks with the core gain the most since October 2008,” said strategists at CRT Capital Group. “The reaction is muted to be sure.”
Fed buyback, minutes
The Fed expects to buy $1.5 billion to $2.5 billion in 2021-2027 securities during the operation, which ends at about 11 a.m. Eastern. See recent Fed buyback results.
Minutes from the Fed’s recent Open Market Committee meeting, which ended Jan. 26, will be released at 2 p.m. Eastern.
The minutes are expected to show that policy makers were looking at improvements in economic data, as some have done in speeches since the meeting, analysts have said.
But rising oil and food prices probably still won’t be seen as a threat to broader inflation because the Fed considers them unlikely to push wages up, with such a high number of Americans unemployed. Incomes are a much bigger determinant of inflation in the U.S. than in some emerging economies, where rising food prices play a bigger role in inflation risks.
After the most recent Fed meeting, officials said in a statement that, “although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.” See Fed’s previous statement.
“I expect the tone to remain as it has been — one where headline inflation pressures are for the most part dismissed,” said William O’Donnell, U.S. government-bond strategist at RBS Securities.
