Treasuries Give Back Ground As Inflation Expectations Increase

(RTTNews) - Treasuries moved to the downside over the course of the trading day on Friday, giving back ground on the heels of the rebound seen in the previous session.

Bond prices came under pressure in morning trading and remained firmly negative throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.5 basis points to 4.504 percent.

The advance on the day came after the ten-year yield ended Thursday's session at its lowest closing level in a month.

Treasuries moved lower following the release of the University of Michigan's preliminary report on consumer sentiment in the month of May.

While the report showed the consumer sentiment tumbled to a six-month low, it also showed an increase in inflation expectations.

The report said year-ahead inflation expectations jumped to 3.5 percent in May from 3.2 percent in April, reaching the highest level since hitting 4.5 percent last November.

Long-run inflation expectations also inched up to 3.1 percent in May from 3.0 percent in April, remaining elevated relative to the 2.2-2.6 percent range seen in the two years pre-pandemic.

"Today's lower-than-expected consumer sentiment numbers are a warning sign that the consumer shouldn't be taken for granted," said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance. "In addition, inflation expectations have been rising as well, which is a double whammy for the Fed. He added, "If spending slows down and inflation increases, we'll get the opposite of the Goldilocks scenario that many were hoping for, and the Fed will be in an especially difficult position of choosing between accommodating a slowing economy and fighting increasing inflation expectations."

Inflation data is likely to be in the spotlight next week, with the Labor Department due to release its closely watched reports on consumer and producer prices in the month of April.