Treasury yields plunge after July consumer prices reach unchanged from the last month

August 11, 2022: -On Wednesday, Treasury yields declined as a highly expected inflation figure reached flat last month.

The yield on the benchmark 10-year Treasury note tumbled nine basis points to 2.67%, beating the lowest weekly level. The yield on the 30-year Treasury bond came down six basis points to 2.96%. Yields move inversely to prices, and a basis point is equal to 0.01%.

The sharp decline in yields came as data showed the consumer price index rose 8.5% in July from a year ago, lighter than a Dow Jones estimate of 8.7%. Prices were unchanged from the last month.

Excluding volatile food and energy prices, known core CPI rose 5.9% annually and 0.3% monthly, reached to estimates of 6.1% and 0.5%.

The inflation report suggested to some that price pressures might have peaked, which could spark speculations that the Federal Reserve could conduct a smaller interest-rate hike next month.

“Overall, incremental confirmation that the Fed’s efforts to combat consumer price increases have been successful,” Ian Lyngen, BMO’s head of U.S. rates, said in a note. “The combination of NFP and CPI for July leave the 75 bp vs. 50 bp Sept hike debate alive and well. Moreover, this means volatility around incoming data will remain elevated.”

The central bank has hiked benchmark taking rates by 2.25 in 2022, with inflation numbers ranking below their 2% long-run target. Fed officials have shown that more additional rate increases are on the horizon.

On Wednesday, Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari are scheduled to provide remarks on U.S. economic needs at separate events.