U.S. Treasury bond yields rise despite wave of disappointing economic data

The U.S treasury bonds yield gained on Thursday despite weaker than expected CPI and employment figures. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, moved higher 2.40 pct to 1.804 pct and the yield on the 2-year Treasury bond rose 3.24 pct to 0.774 pct by 1350 GMT.

The United States March consumer price index marginally rose 0.1 pct m/m, missing market consensus of 0.2 pct m/m increase, from down 0.2 pct in February. Similarly, core-CPI (excluding food and energy) grew 0.1 pct m/m, also lower than the market projection of 0.2 pct m/m. On annually basis, consumer price index inched 0.9 pct, lower than the market expectation of 1.1 pct, as compared to 1.0 pct in the previous month. Core-CPI rose 2.2 pct (consensus was for 2.3%), from prior 2.3 pct in February. On the other hand, initial jobless claims fell to lowest since 1973 by 14K to 253K in the week ended Apr 8, as compared to market expectation of 270K.

Yesterday, the March US advance retail sales report revealed an overall -0.3% m/m result, versus the revised unchanged m/m reading that occurred in February (prev. -0.1% m/m), below market expectations for a +0.1% m/m reading. The producer prices index (PPI) report revealed an overall -0.1% m/m (-0.1% y/y) result, versus the -0.2% m/m (unchanged y/y) decrease that occurred in February. This comes in well below market expectations for a +0.3% m/m result.

After reading these disappointing data, market will no more speculate any early hike from Federal Reserve in its up-coming policy meeting. Nevertheless, we continue to see a more careful, wait and see approach to continue being employed by the Fed likely to materialize in higher rates come the June FOMC meeting (still delivering only 50bps of additional tightening over the course of 2016).

Also, the Federal Reserve Chair Yellen said that there is a great deal of uncertainty over interest rate hike and therefore, she favours a cautious approach.

Meanwhile, the investors will now focus on the up-coming March Industrial production data, which is also expected to decline 0.9 pct, from up 1 pct in February.