BS: Treasuries Advance as U.S. Consumer Prices Held Steady in July
Treasuries remained higher as a report showed the U.S. consumer-price index (BGSV) held steady last month.
Longer-term Treasuries led the rally on optimism low inflation will give the the Federal Reserve time to raise interest rates gradually. A gauge of Treasury market inflation expectations was close to a four-month low. British sovereign bonds rose as U.K. inflation cooled more in July than economists forecast.
“We are unlikely to get huge upside surprises in inflation in the near term,” said Jorge Garayo, a fixed-income strategist at Societe Generale SA in London. “It looks like central banks around the world, including the Fed, can afford to keep accommodative policies for a bit longer. They are unlikely to change their rhetoric on this front.”
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The U.S. 10-year yield dropped two basis points to 2.37 percent at 8:31 a.m. in New York, according to Bloomberg Bond Trader data.
While Societe Generale sees inflation as well-anchored in the near-term, the bank suggests investors buy U.S. break-even rates on bets they will gradually rise, according to Garayo.
The difference between yields on five-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of the outlook for consumer prices over the life of the debt, was little changed at 1.91 percentage points. It fell to 1.90 yesterday, the lowest since April 17. The average for the past decade is 1.94 percentage points.
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Stagnant Wages
From the U.S. to Australia, stagnant wages are curbing prices and threatening to slow economic expansion, boosting bonds.
Bonds around the world are rallying. The Bloomberg Global Developed Sovereign Bond Index rose 4.9 percent this year through yesterday, erasing the 4.6 percent drop in 2013.
The Fed will publish the minutes of its July 29-30 meeting tomorrow, two days before Yellen is due to speak at an annual symposium in Jackson Hole, Wyoming.
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There’s about a 75 percent chance the Fed will increase its benchmark interest rate to at least 0.5 percent by October 2015, futures contracts indicate. The central bank has held its target in a range of zero to 0.25 percent since December 2008.
Subdued wage growth is helping to keep inflation in check even as U.S. employers added more than 200,000 jobs for a sixth month in July.
Hourly Earnings
Average hourly earnings rose 2 percent in July from a year earlier, government data showed this month, failing to recover from the recession that began in December 2007 and ended in June 2009. Growth was as high as 3.6 percent in 2008.
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The U.S. isn’t alone. German (GRLXISAY) labor costs rose at the slowest year-on-year pace in the first quarter since 2010. Australian wage costs have climbed at an annual pace of 2.6 percent for the past three quarters, the least in government data that started in 1998.
Data in the U.K. showed the annual rate of price growth fell to 1.6 percent last month from 1.9 percent in June. Economists had forecast 1.8 percent, based on the median of estimates in a Bloomberg survey.
To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net
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To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey
