Treasuries Move Modestly Lower Despite Tamer Than Expected Inflation Data

(RTTNews) - After initially showing a lack of direction, treasuries moved modestly lower over the course of the trading session on Friday.

Bond prices bounced back and forth across the unchanged line in early trading before sliding a little more firmly into the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose 2.8 basis points to 4.160 percent.

The weakness among treasuries came even though the Commerce Department released a report showing a bigger than expected slowdown in the annual rate of core consumer price growth in the month of December.

The Commerce Department said consumer prices in December were up by 2.6 percent compared to the same month a year ago, unchanged from November and in line with economist estimates.

Meanwhile, the report said the annual rate of growth by core consumer prices, which exclude food and energy prices, slowed to 2.9 percent in December from 3.2 percent in November. Economists had expected core price growth to decelerate to 3.0 percent.

The annual inflation readings, which are said to be preferred by the Federal Reserve, were included in the Commerce Department's monthly report on personal income and spending.

While core inflation came in below economist estimates, most don't see the data as being enough to convince the Fed to lower rates in March as many had previously hoped.

"Today's inflation report gives the Fed a path to cut interest rates," said Larry Tentarelli, Chief Technical Strategist, Blue Chip Daily Trend Report. "Based on strong recent GDP data and jobs data, we expect the first rate cut to be in the May-June period."

He added, "If jobs and or economic data softens a bit and inflation continues to drop quickly, that could increase the chances of a rate cut in March, but that is not our base case yet."

Next week's U.S. economic calendar starts off relatively quiet but picks up in the middle of the week with the Fed's monetary policy announcement on Wednesday.

While the Fed is widely expected to leave interest rates unchanged, traders will be looking for clues about the timing of highly anticipated rate cuts.

Later in the week, traders are likely to keep a close eye on the monthly jobs data as well as reports on weekly jobless claims, labor productivity and costs and manufacturing activity.