Bond Report: Treasury yields hold ground before U.S. consumer price index

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U.S. Treasury yields were struggling for direction on Thursday as investors looked ahead to consumer prices data that could indicate if inflationary pressures have dissipated, which could pressure the Federal Reserve to lower rates further.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.33%   was virtually unchanged at 1.589%, while the 30-year bond yield TMUBMUSD30Y, +0.61%   was up 1.1 basis points to 2.097%. The 2-year note rate TMUBMUSD02Y, -0.55%   was down 1.2 basis points to 1.462%.

What’s driving Treasurys?

The U.S. consumer price index for September is due for release at 8:30 a.m. Eastern Time. Economists polled by MarketWatch expect consumer prices to rise 0.1%, and its core measure stripping out for food and energy prices was up 0.2%. For the year the forecast is for U.S. inflation of 1.8%, compared to 1.7% in August. In other data, weekly jobless claims for ending in Oct. 5.

Earlier this week, a data release showed producer prices fell 0.3% in September, one of the earlier indications that price pressures may be waning.

Investors also monitored developments on U.S.-China trade after conflicting reports over the likelihood of a deal whipsawed bond-trading overnight. Some reports suggested lower-level talks earlier this week had made no headway on critical issues, and that the Chinese delegation’s visit was cut short. Yet Bloomberg News reported that the White House could put in place a currency pact and suspend tariff increases that are set to take effect next week.

This comes as China’s Vice Premier Liu He will meet with Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Thursday in Washington.

See: U.S.-China talks could lead to currency deal or collapse quickly, conflicting reports say

What did market participants’ say?

“The core fundamental risk event on Thursday will be CPI inflation for September,” said Jon Hill, an interest-rate strategist at BMO Capital Markets.

With bond-market measures of inflation expectations at depressed levels, “any durable price level inflation shock could catalyze a bearish retracement toward a higher yield plateau,” said Hill.