Treasuries Move Higher After Seeing Early Weakness

(RTTNews) - After coming under pressure early in the session, treasuries showed a notable turnaround over the course of the trading day on Friday.

Bond prices climbed well off their early lows and into positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.5 basis points at 1.782 percent after reaching a high of 1.848 percent.

The rebound by treasuries came as traders digested a report from the Commerce Department showing core consumer price growth accelerated to a nearly 40-year high in December.

The Commerce Department's reading on inflation, which is said to be preferred by the Federal Reserve, showed the annual rate of core consumer price growth accelerated to 4.9 percent in December, reaching the highest level since September 1983.

At the same time, the report also showed personal spending fell by 0.6 percent in December after rising by 0.4 percent in November. The decrease in spending matched economist estimates.

Excluding price changes, real personal spending tumbled by 1.0 percent in December after slipping by 0.2 percent in the previous month.

"Even assuming a bounce-back for each of the three months of the first quarter, which seems unlikely given that Omicron and the child tax credit expiry will weigh on spending in January, the devastatingly weak end to the previous quarter means that we expect first-quarter real consumption growth to be unchanged overall," said Paul Ashworth, Chief U.S. Economist at Capital Economics.

"Add in a slower pace of inventory accumulation, and we currently have first-quarter GDP growth tracking at -0.5% annualized," he added. "To our minds, despite the strength of price and wage inflation, it is disappointingly weak real economic growth that will prevent the Fed from delivering a full-blown Ratemaggedon this year."

A separate report released by the University of Michigan showed consumer sentiment in the U.S. deteriorated by more than initially estimated in the month of January.

The report showed the consumer sentiment index for January was downwardly revised to 67.2 from a preliminary reading of 68.8. Economists had expected a more modest downward revision to a reading of 68.7.

With the downward revision, the index was further below the final December reading of 70.6, dropping to its lowest level since hitting 93.7 in November 2011.

The Labor Department's monthly jobs report is likely to be in focus next week, although traders are also likely to keep an eye on reports on manufacturing and service sector activity.