Unexpected high inflation drives down Treasury bonds
June 18, 2014 5:34 am
Government bonds from the US have started to be let go by investors who are using the example of prices of consumer products rising higher than what was originally expected as an indicator of future market conditions.
Latest figures showed that May’s consumer prices underwent an increase of 0.4% to the surprise of the market leading to the annual inflation rate to similarly climb from April’s 2% to 2.1% in May. Meanwhile, the US economy’s core consumer price index, a tool used to measure changes in a country’s cost of living except for energy and volatile food products, was up 0.3%
As a result, the ensuing selling spree of US Treasury paper born from inflation news have helped 10 year bond yields climb six basis points to 2.66%. This increase has contributed to the US dollar’s overall gain in the currency market against several of its counterparts by 0.2%.
The lofty inflation levels are expected to play a major role in discussions between committee members of the Federal Reserve. The central bank is meeting this week to determine the appropriate timing for hiking up interest rates, a move that has been surrounded by much speculation in the market. Pressure from the recent consumer price figures could serve as a push for the Fed to enact the hikes sooner that the initially planned mid-2015 schedule.
Another factor that may play a role in making early rate hikes possible are global issues such as the Islamist insurgency in Iraq and what impact it may have on crude oil supplies in the world. Should oil prices continue to increase and compound the inflation in consumer products, some economists warn that this may add even more pressure to the Fed.
The material has been provided by InstaForex Company – www.instaforex.com
Government bonds from the US have started to be let go by investors who are using the example of prices of consumer products rising higher than what was originally expected as an indicator of future market conditions.
Latest figures showed that May’s consumer prices underwent an increase of 0.4% to the surprise of the market leading to the annual inflation rate to similarly climb from April’s 2% to 2.1% in May. Meanwhile, the US economy’s core consumer price index, a tool used to measure changes in a country’s cost of living except for energy and volatile food products, was up 0.3%
As a result, the ensuing selling spree of US Treasury paper born from inflation news have helped 10 year bond yields climb six basis points to 2.66%. This increase has contributed to the US dollar’s overall gain in the currency market against several of its counterparts by 0.2%.
The lofty inflation levels are expected to play a major role in discussions between committee members of the Federal Reserve. The central bank is meeting this week to determine the appropriate timing for hiking up interest rates, a move that has been surrounded by much speculation in the market. Pressure from the recent consumer price figures could serve as a push for the Fed to enact the hikes sooner that the initially planned mid-2015 schedule.
Another factor that may play a role in making early rate hikes possible are global issues such as the Islamist insurgency in Iraq and what impact it may have on crude oil supplies in the world. Should oil prices continue to increase and compound the inflation in consumer products, some economists warn that this may add even more pressure to the Fed.
The material has been provided by InstaForex Company – www.instaforex.com
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