(Bloomberg) -- Treasuries rose on Donald Trump’s latest tariff vows, extending a rally that came as a report on producer prices suggested that Wednesday’s selloff sparked by hot consumer inflation data was overblown.
The advance on Thursday pushed longer-dated yields lower by more than 10 basis points on future growth concerns as the US president signed a measure to propose reciprocal tariffs on a country-by-country basis. The dollar fell given that the levies aren’t slated to take effect until at least April.
Earlier, elements of the January producer price index suggested that the Fed’s preferred gauge of consumer inflation, to be released near the end of the month, will be more benign than the CPI was, according to Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management.
“It’s a relief rally,” she said of the move in Treasuries after the data on Thursday.
Even prior to the report, interest-rate strategists at JPMorgan Chase & Co. said investors should buy two-year Treasury notes after Wednesday’s selloff pushed yields toward the high end of the recent range.
The market’s recovery produced gains for those who bought 10-year Treasury notes in Wednesday’s auction, and curtailed demand for this week’s final coupon sale — $25 billion of 30-year bonds sold at 1 p.m. New York time. The bonds were sold to yield 4.748%, about 1.2 basis points higher than the indicated level just before the bidding deadline, a sign that demand fell short of expectations. On Wednesday, the indicated yield for the auction was as high as 4.85%.
Still, Treasuries extended their early gains after Trump signed a measure directing the US Trade Representative and Commerce secretary to propose new levies on a country-by-country basis in an effort to rebalance trade relations. The imposition of reciprocal tariffs on numerous trading partners, heightens the prospect of a broader trade war and further uncertainty for global and US growth.
On Wednesday, a surprise acceleration in consumer price growth battered US government bonds as traders pushed bets for the next Federal Reserve interest-rate cut to December from September. The data intensified fears that inflation has been reignited, and could accelerate further if tariffs Trump has announced take effect.
But while the CPI and core CPI rates unexpectedly quickened, the PCE price index rate that Fed policymakers seek to have average 2% over time may show deceleration to 2.5% for January when released Feb. 28, Citigroup Inc. economists said. They predict the Fed will cut rates in May, though most other Wall Street banks are less sanguine about easing this year, and several predict the central bank will hold rates steady through year-end.
“The market has done a good job of pricing the inflation risk,” Brian Weinstein, head of global markets at Morgan Stanley Investment Management, said on Bloomberg Television. “What the market is anticipating is that we shift this conversation to the growth impact of all this uncertainty in the tariffs.”
--With assistance from Naomi Tajitsu.
(Adds Trump tariffs and updates yield levels)
