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Bond Report: 10- and 30-year Treasury yields finish April with their biggest monthly advances since 2009

Treasury yields nudged higher Friday as a closely watched U.S. inflation gauge surged to 6.6% in March and employment costs accelerated in the first quarter.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.892%

rose to 2.907%, up from 2.862% at 3 p.m. Eastern Thursday.

The 2-year Treasury yield
TMUBMUSD02Y,
2.706%

was at 2.727% versus 2.648% Thursday afternoon.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.955%

edged up to 2.977%, compared with 2.928% late Thursday.

Through Thursday afternoon, the 10-year yield was up 53.8 basis points in April, on track for its largest monthly rise since December 2009, according to Dow Jones Market Data. The 2-year yield was up 36.4 basis points over the same stretch, while the 30-year T-bond yield had gained 48.4 basis points, set for its largest monthly rise since January 2009.

What’s driving the market?

The Federal Reserve’s preferred measure of inflation rose a sharp 0.9% in March, but the increase was largely from surge gas prices and there were signs that intense price pressures might begin to ease. A narrower measure of inflation that kicks out food and energy costs rose just 0.3% in March for the second month in a row — matching forecasts.

Over the past 12 months, the personal consumption price index climbed 6.6%, up from 6.4% in February, the government said Friday. That’s the steepest increase since 1981.

The U.S. Employment Cost Index rose 1.4% in the first quarter, up from a 1% gain in the October-December quarter. Economists polled by The Wall Street Journal had forecast a 1.1% increase.

Treasury yields have moved up sharply in 2022 as inflation has continued to run hot, with the consumer price index hitting a level last seen more than four decades ago. The Fed, which delivered a quarter percentage point interest rate increase in March, is expected to deliver a rare half-point hike to the fed-funds rate when policy makers meet next week. And investors have penciled in the possibility of more outsize rate increases to come, along with expectations for an aggressive wind-down of the central bank’s balance sheet.

Read: Fed’s half-percentage-point interest rate hike next week seen baked in the cake

What do analysts say?

“The bigger story from today’s data releases was further evidence that inflation is starting to ease,” said Andrew Hunter, senior U.S. economist at Capital Economics. “That won’t stop the Fed from hiking by 50bp next week, but it supports our view that inflation will fall a little more quickly this year than Fed officials now appear to expect.”

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