FX.co ★ Treasuries Regain Ground Following Inflation Data

Following a significant downward trend in the previous two trading sessions, treasury bonds showed signs of recovery in Friday's trading. Bond prices fluctuated but managed to maintain an upward trajectory, causing the yield on the fundamental ten-year note to fall by 3.7 basis points to 4.669 percent. This day's decrease indicates a retreat of the ten-year yield from its highest level in nearly half a year.

The recovery in treasury bonds was influenced by the release of key inflationary indicators showing that U.S. consumer prices in March aligned with economists' forecasts. The Commerce Department reported that its Consumer Price Index (CPI) rose 0.3 percent in March, mirroring the February increase and meeting economists' predictions.

Stripping out the volatile food and energy sectors, core consumer prices also increased by 0.3 percent for the second consecutive month, which was in line with market expectations. The report also indicated that annual consumer price growth accelerated to 2.7 percent in March, up from 2.5 percent in February, slightly exceeding economists' forecast of 2.6 percent growth. Core consumer prices' annual rate of growth in March remained steady at 2.8 percent compared to February, contrary to expectations of a slowdown to 2.6 percent.

These inflationary readings, favored by the Federal Reserve, were part of the Commerce Department’s report on personal income and expenditure for March. While the quicker than anticipated annual growth rates make an impending interest rate reduction increasingly improbable, market participants may have already accommodated such rate concerns.

Jamie Cox, Managing Partner for Harris Financial Group, noted that current inflation data are not yielding the expected results. However, he welcomed the Federal Reserve's assurance that rates would remain unchanged in the first six months, giving the market enough time to acclimatize to the stagnation in inflation. Cox foresees the Federal Reserve addressing the balance sheet before initiating rate cuts, possibly as early as June.

With the Federal Reserve's monetary policy announcement expected to take center stage next week, traders will also keep a keen eye on the monthly employment report. Additionally, reports on manufacturing and service sector activity are expected to garner interest.