Treasuries Extend Upward Move Following Inflation Data

(RTTNews) - Treasuries moved notably higher during trading on Tuesday, extending the upward move seen over the two previous sessions.

Bond prices advanced early in the session and remained firmly positive throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 5.7 basis points to 3.852 percent.

The continued strength among treasuries came following the release of a Labor Department report showing producer prices crept slightly higher in the month of July.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in July after rising by 0.2 percent in June. The uptick by producer prices matched economist estimates.

Meanwhile, the report said the annual rate of producer price growth slowed to 2.2 percent in July from an upwardly revised 2.7 percent in June.

Economists had expected the annual rate of producer price growth to decelerate to 2.3 percent from the 2.6 percent originally reported for the previous month.

The notable slowdown by the annual rate of price growth has increased confidence the Federal Reserve will lower interest rates at its monetary policy meeting next month.

CME Group's FedWatch Tool is currently indicating a 54.5 percent chance the Fed will cut rates by 50 basis points and a 45.5 percent chance of a 25 basis point rate cut.

"The PPI data this morning came in lower than expected - across the board - which is good news for those investors that worried the Fed would have to be more cautious in lowering interest rates due to lingering inflation," said Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance.

He added, "If tomorrow's CPI report comes in lower than expected, like this morning's PPI report did, then the Fed truly has a green light to cut rates by 50 bps at their next meeting if they deem it necessary to quickly get back to neutral in the face of a looming slowdown in the economy."

On Wednesday, the Labor Department is scheduled to release its more closely watched report on consumer price inflation in the month of July.

Economists currently expect consumer prices to rise by 0.2 percent in July after edging down by 0.1 percent in June, while the annual rate of consumer price growth is expected to dip to 2.9 percent from 3.0 percent.

Core consumer prices, which exclude food and energy prices, are also expected to rise by 0.2 percent in July after inching up by 0.1 percent in June. The annual rate of core price growth is expected to slow to 3.2 percent from 3.3 percent.