Treasury yields ascend following wholesale prices increased faster than anticipated

August 15, 2023: On Friday, U.S. Treasury yields increased as retailers set a higher measure of wholesale inflation.

The yield on the benchmark 10-year Treasury note added seven basis points to 4.15%, while the work on the 2-year Treasury note ticked seven basis points to 4.89%.

The July producer price index rose 0.3%, as the Bureau of Labor Statistics reported Friday. That came in barely ahead of the 0.2% month-over-month increase expected by economists polled by Dow Jones.

The report follows customer price index on Thursday, which indicated that prices rose by 3.2% every year in July, slightly below the 3.3% consensus forecast among economists polled by Dow Jones. However, the core CPI reading, which bans volatile food and energy prices, increased by an annual 4.7%.

Tiffany Wilding, managing director and economist at Pimco, said the Federal Reserve would welcome the Thursday data. Traders are closely watching several key data points to gauge whether the central bank will need to hike interest rates again in September and how long monetary policy will stay tight.

“After inflation was stubbornly firm in the first part of the year, the U.S. economy continues to look on track for meaningful disinflation in the second half of the year,” Wilding said.

“We expect core CPI to end the year around 3.3% y/y. Still, Fed officials will likely remain in data-dependence mode for now and wait for further evidence of the slowing economy before declaring victory.