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Treasury yields pull back ahead of inflation report, Fed minutes

Mark DeCambre

Treasury prices rose and yields pulled back on Wednesday as rising political tensions lured haven bids ahead of the latest update on U.S. inflation and central-bank monetary policy.

How are Treasurys performing?

The 10-year Treasury note yield(XTUP:TMUBMUSD10Y=X) slipped 0.9 basis point to 2.790%, and the two-year note yield(XTUP:TMUBMUSD02Y=X), retreated by 1.6 basis points to 2.299%, coming off its highest level since March 20. Meanwhile, the 30-year bond yield (XTUP:TMUBMUSD30Y=X) gave up 0.8 basis point at 3.011%.

Debt prices rise as yields fall.

What’s driving markets?

Investor attention has momentarily shifted from anxieties over trade conflicts between those the U.S. and China, which have eased somewhat, to concerns about a possible military strike against Syrian President Bashar al-Assad for an alleged chemical-weapons attack. Rising anxieties in the Middle East, and the possibility of drawing a response from Syrian allies, Iran and Russia, have attracted some investors in to the perceived safety of bonds.

That trading action comes ahead of a March reading on consumer prices and a report that might offer further clues about the Federal Reserve’s plan for monetary policy in the coming months, against the backdrop of elevated volatility, fiscal stimulus and tariff tensions.

Signs of rising inflation had jolted the price of government paper lower in the past because climbing prices can chip away a bond’s fixed payments and compel the Fed to accelerate its plans to raise interest rates—both bearish factors for Treasurys.

Renewed concerns that President Donald Trump will fire special counsel Robert Mueller or Deputy Attorney General Rod Rosenstein—igniting a political furor in Washington, amid an expanding probe into the 2016 presidential campaign and its ties to Russia—also is pressuring assets perceived as risky and buoying havens.

What data are ahead

The consumer-price index for March is due for release at 8:30 a.m. Eastern Time, with economists polled by MarketWatch forecasting headline prices to fall 0.1% and core prices to rise 0.2%.

Minutes from the Fed’s March 20-21 policy gathering, where the Jerome Powell central bank lifted interest rates for the fifth time since December of 2015, are due at 2 p.m. Eastern, with an update on the Federal budget due at the same time.

Check out:5 things to watch from minutes of the Fed’s March meeting

What are strategists saying?

“The rate hike announced at the meeting was well telegraphed and also appropriate in the context of the economic data released since the beginning of the year. We will be looking for more details about the outlook for inflation, since a few policymakers have recently made comments about upgrading their forecasts,” wrote Jefferies economists, Ward McCarthy and Thomas Simons, in a late-Tuesday research note. Market participants have priced in the expectation for two additional rate hikes in 2018.

What other assets are in focus?

The 10-year German bond yield (XTUP:TMBMKDE-10Y=X) fell to 0.499%, compared with 0.515% in the previous session, according to FactSet data. Meanwhile, the S&P 500 index(^GSPC) and the Dow Jones Industrial Average (^DJI) were poised to fall firmly at the start of trading.

Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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