Treasuries Close Roughly Flat After Pulling Back Off Early Highs

(RTTNews) - Treasuries moved notably higher early in the trading day on Friday but gave back ground over the course of the session.

Bond prices pulled back off their early highs and into negative territory before eventually closing roughly flat. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, crept up by less than a basis point to 3.901 percent.

While treasuries initially benefited from the release of tamer-than-expected U.S. inflation data, other upbeat economic data led to some uncertainty about the outlook for interest rates.

The Commerce Department released a highly anticipated report showing the annual rate of consumer price growth decelerated to 2.6 percent in November from a downwardly revised 2.9 percent in October.

Economists had expected the pace of price growth to slow to 2.8 percent from the 3.0 percent originally reported for the previous month.

The annual rate of growth by core consumer prices, which exclude food and energy prices, also slowed to 3.2 percent in November from a downwardly revised 3.4 percent in October.

Economists had expected core consumer price growth to decelerate to 3.3 percent from the 3.5 percent originally reported for the previous month.

The readings on inflation, which are said to be preferred by the Federal Reserve, were included in the Commerce Department's report on personal income and spending.

The bigger than expected slowdown in consumer price growth added to optimism the Fed is poised to pivot to cutting interest rates early next year.

Meanwhile, the Commerce Department released a separate report showing new orders for U.S. manufactured durable goods surged by much more than expected in the month of November.

The report said durable goods orders spiked by 5.4 percent in November after tumbling by a revised 5.1 percent in October.

Economists had expected durable goods orders to jump by 2.2 percent compared to the 5.4 percent nosedive that had been reported for the previous month.

Excluding a rebound in orders for transportation equipment, durable goods orders climbed by 0.5 percent in November after falling by 0.3 percent in October. Ex-transportation orders were expected to inch up by 0.1 percent.

Alex McGrath, Chief Investment Officer for NorthEnd Private Wealth, noted core consumer price growth is still well above the Fed's target of 2.0 percent, which he said is "less supportive of the imminent cuts the market is expecting."

"This especially comes into focus looking at the durable goods orders that came in wildly above expectations," McGrath said. "The idea that to drive inflation down the economy needs to slow has once again put the Fed in between a rock and a hard place."

He added, "If the economy never slows down enough to fully stamp inflation out and they begin cutting, do we see an Arthur Burns 2.0 moment where the battle with inflation rears its head again in 2024? That will undoubtedly be one of the more pressing questions facing investors next year."

Next week's trading activity may be somewhat subdued following the Christmas weekend, with a relatively light U.S. economic calendar also likely to keep some traders on the sidelines.