U.S. Treasuries Slide on Firm Economic Data

U.S. Treasuries Slide on Firm Economic Data

17 May 2016, 16:19
Roberto Jacobs
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U.S. Treasuries Slide on Firm Economic Data

The U.S. Treasuries slumped on Tuesday as consumer price index ticked higher in April. Firmer U.S housing starts also added to the downfall. The yield on the benchmark 10-year Treasury note which moves inversely to its price rose 1bp to 1.760 pct and the yield on the 2-year Treasury bond also jumped 3bps to 0.811 pct by 1300 GMT.

The U.S consumer price index (CPI) increased 0.4 pct m/m, above expectations for a 0.3 pct m/m, from the unrevised 0.1 pct m/m result that occurred in March. Meanwhile, core CPI came in +0.2% m/m in April, in the line with expectations for a 0.2 pct m/m increase as compared to unrevised 0.1 pct m/m reading seen in March. Despite the overall dampness seen in recent months, we expect a gradual pick-up in inflation readings will be seen in the months ahead. However, we are unlikely to see a substantial move towards the Fed's 2 percent objective until we see greater traction from wage pressures.

Moreover, the April Commerce Department housing starts and building permits report registered an increase in housing starts to 1172k, which rose 6.6 pct m/m, well above market expectations for a 1135k, from the revised 1099k reading seen in March (previous 1089k). Meanwhile, building permits rose 3.6 pct m/m to 1116k in April, below market expectations for a 1130k result, as compared to the revised 1077k reading that occurred in March (prev. 1086k). Alongside the increase seen in starts, we expect broader improvement is likely to be seen in the months ahead as production gradually improves, despite any lingering headwinds.

The markets will now focus on the minutes from the April FOMC meeting on Wednesday (1800). Meanwhile, S&P 500 Futures fell 0.22 pts to 2,058.25 by 1300 GMT.

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