A Near-five-month High in Treasury Yields is Expected Ahead of Producer Price Data and the Unemployment Report

The morning of Thursday saw a decline in yields on U.S. government debt, marking a retreat from their recent peak levels observed over nearly a five-month period. This adjustment followed the release of March's subdued producer-price index.

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Analyzing the figures, the yield on the 2-year Treasury witnessed a decrease of 4.3 basis points, settling at 4.926% compared to the previous day's 4.969%.

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Similarly, the yield on the 10-year Treasury dropped by 3.7 basis points to 4.522% from Wednesday's 4.559%. Meanwhile, the 30-year Treasury saw a marginal decline of less than 1 basis point, registering at 4.624% as opposed to 4.633% on Wednesday.

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Notably, all three rates concluded Wednesday's session at their highest levels since November 13-15. The 2-year rate experienced a notable surge of 22.2 basis points, marking the most significant single-day increase since March 27, 2023.

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Similarly, the 10-year rate rose by 19.4 basis points, representing the most substantial one-day rise since September 22, 2022.

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The market response is attributed to the release of data indicating a modest 0.2% increase in wholesale costs for the previous month. This figure deviated slightly from economists' projections, who anticipated a 0.3% rise in the producer-price index for March.

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The report suggested a lesser degree of inflationary pressure compared to the preceding day's report on March consumer prices, which had surpassed expectations.

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The pronounced increase in consumer prices triggered significant shifts in the 2- and 10-year yields, raising doubts about the Federal Reserve's ability to implement interest rate cuts by June.

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John Williams, president of the New York Fed, expressed optimism regarding inflation, foreseeing its gradual return to the 2% target despite occasional fluctuations. Meanwhile, the European Central Bank maintained its interest rates in line with expectations, with some policymakers signaling readiness to decrease rates while ultimately aligning with the consensus.

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Analysts, including Daniel Silver from JPMorgan Chase & Co., noted the comparatively subdued nature of the March producer-price index release following the previous day's CPI data surprise. Silver highlighted that the inflation depicted in the PPI data over the past twelve months appeared milder compared to the trends observed throughout 2021, 2022, and early 2023.

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