Treasuries See Further Downside As Producer Prices Rise More Than Expected

After coming under pressure late in the previous session, treasuries showed another significant move to the downside during trading on Friday.

Bond prices moved notably lower in early trading and remained firmly negative throughout the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.8 basis points at 4.168 percent.

The continued weakness among treasuries came following the release of a Labor Department report showing producer prices climbed by slightly more than expected in the month of July.

The Labor Department said its producer price index for final demand rose by 0.3 percent in July following a revised unchanged reading in June.

Economists had expected producer prices to inch up by 0.2 percent compared to the 0.1 percent uptick originally reported for the previous month.

The report also showed the annual rate of producer price growth reaccelerated to 0.8 percent in July after slowing to just 0.2 percent in June. The rate of growth was expected to accelerate to 0.7 percent.

The bigger-than-expected increase in producer prices led to renewed concerns about the outlook for interest rates following Thursday’s tamer-than-expected consumer price data.

“Hold your horses on calls that the Fed is done raising rates,” said Edward Moya, senior market analyst at OANDA. “This was a notable increase for producer prices and that could very well keep the risk of a November Fed rate hike on the table.”

“This PPI report suggests stubborn inflation pressures remain in the economy. Given the recent trends with the economy, expectations for the August readings could rise even further,” he added. “The Fed is likely done raising rates, but the data might not support that call over the next month or two.”

Reports on import and export prices, retail sales, industrial production and housing starts are likely to attract attention next week along with the minutes of the latest Federal Reserve meeting.

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