U.S. yields lower after PPI with Fed eyed
By Chuck Mikolajczak
NEW YORK, June 14 (Reuters) - U.S. Treasury yields fell on Wednesday after a reading of inflation fell more than expected in May, further cementing expectations the Federal Reserve will hold interest rates steady at its policy announcement later in the day.
The producer price index for final demand dropped 0.3% last month on lower energy costs after rising by an unrevised 0.2% in April, the Labor Department said on Wednesday. The year-over-year rise of 1.1% was the smallest since December 2020.
The data comes after a reading of consumer prices on Tuesday showed a slowing increase, and ahead of the Fed's policy statement scheduled for 2 p.m. EDT (1800 GMT).
"The surprise effect of inflation readings have come down dramatically, so it is less of a market mover than what it was obviously a quarter or two ago, particularly as it relates to interest rates," said Dylan Kremer, co-chief investment officer at Certuity in Miami.
"That is kind of the shift we are seeing now, the move away from inflation and the Fed to where is global growth going and where the job market is going."
The yield on 10-year Treasury notes was down 5.1 basis points to 3.788%. The 10-year yield was on track to snap a three-session streak of gains.
The central bank is widely expected to leave rates unchanged at the 5.00%-5.25% range but may indicate that more rate hikes are possible as they assess the direction of the economy. The Fed is also set to release its summary of economic projections (SEP) for the first time since March.
Expectations that the Fed will pause its rate hike cycle are at 95.4%, according to CME's FedWatch Tool, up from 93.1% on Tuesday.
The yield on the 30-year Treasury bond was down 3.9 basis points to 3.903%.
Policy announcements are from the European Central Bank (ECB) and Bank of Japan are expected on Thursday and Friday, respectively.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 83.4 basis points after inverting by as much as a negative 94.49 basis points on Tuesday.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 7.4 basis points at 4.622% after hitting a three-month high of 4.707% on Tuesday.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.174%, after closing at 2.157% on Tuesday.
The 10-year TIPS breakeven rate was last at 2.222%, indicating the market sees inflation averaging 2.2% a year for the next decade.
(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis)
