Treasury Yields Trade Lower After a U.S Producer-price Revision for March

Treasury yields dipped slightly on Tuesday morning after a downward revision to the U.S. March producer-price index mitigated the impact of an unexpectedly high reading for April.

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Current Yield Movements:

• The 2-year Treasury yield fell by 2.8 basis points to 4.827%, down from 4.855% on Monday.
• The 10-year Treasury yield decreased by 2.1 basis points to 4.458%, down from 4.479% on Monday.
• The 30-year Treasury yield dropped by 1.5 basis points to 4.606%, down from 4.621% on Monday.

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Market Drivers:The April producer-price index (PPI) data released on Tuesday showed that inflation remains persistent. U.S. wholesale prices increased by 0.5% last month, surpassing the 0.3% rise predicted by economists surveyed by the Wall Street Journal. The core PPI, which excludes volatile items like energy and food, also doubled expectations.

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However, the market's reaction was tempered by a downward revision to March’s PPI report, which was adjusted to a 0.1% decline from the previously reported small increase. Traders seemed to place more emphasis on this revision than on April’s higher-than-expected reading.

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Looking ahead, Federal Reserve Chair Jerome Powell is scheduled to speak at an event in the Netherlands at 10 a.m. Eastern time on Tuesday. Additionally, the consumer-price index (CPI) for April is due on Wednesday. If the CPI results are hotter than expected for the fourth consecutive month, the market might further delay expectations for the first interest-rate cut.

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Analysts' Perspectives:“Tuesday’s stronger-than-expected PPI data is yet another indication that inflation is decelerating more slowly than anticipated,” said Clark Bellin, president and chief investment officer of Bellwether Wealth in Lincoln, Nebraska, which manages approximately $500 million in assets. “This is why the Federal Reserve is likely to cut interest rates only once this year, probably towards the very end of the year, to allow more time for inflation to settle down.”

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In summary, Treasury yields decreased slightly following a downward revision to the March producer-price index, which lessened the blow of April’s unexpectedly high inflation data. The 2-year, 10-year, and 30-year Treasury yields all saw modest declines. The April PPI data indicated continued inflationary pressures, but the market’s focus was on the revised March data.

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Upcoming events, including Jerome Powell’s speech and the April CPI report, will further influence market expectations, particularly regarding the timing of potential interest-rate cuts by the Federal Reserve. Analysts suggest that persistent inflation may delay rate cuts until the end of the year.

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