Treasuries Give Back Ground After Initial Surge But Still Close Higher

(RTTNews) - Treasuries surged early in the session on Tuesday in reaction to weaker-than-expected inflation data but gave back ground over the course of the trading day.

Bond prices pulled back well off their best levels of the day but managed to remain in positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2.4 basis points to 4.585 percent after hitting a low of 4.525 percent.

Despite regaining ground as the day progressed, the ten-year yield pulled back off the nearly two-month closing high set on Monday.

The early surge by treasuries came following the release of a closely watched Labor Department report showing consumer prices in the U.S. decreased by much more than expected in the month of June.

The Labor Department said its consumer price index fell by 0.4 percent in June after climbing by 0.5 percent in May. Economists had expected consumer prices to edge down by 0.1 percent.

The report also said the annual rate of consumer price growth slowed to 3.5 percent in June from 4.2 percent in May, coming in below economist estimates for a 3.8 percent jump.

Meanwhile, the Labor Department said core consumer prices, which exclude food and energy prices, came in unchanged in June after rising by 0.2 percent in May. Economists had expected core prices to increase by another 0.2 percent.

The annual rate of growth by core consumer prices slowed to 2.6 percent in June from 2.9 percent in May, while economists had expected the pace of growth to slip to 2.8 percent.

The weaker-than-expected inflation data helped ease recent concerns about the outlook for inflation and the possibility of higher interest rates.

"Today's better than expected core reading gives the Fed breathing room in deciding whether and when to raise interest rates," said Nationwide Chief Economist Kathy Bostjancic.

She added, "That all said, the renewed escalation of conflict in the Middle East and announced reimposition of a U.S. blockage has prompted a sharp reversal in oil and gasoline prices that introduces upside risk to our forecast."

Buying interest waned over the course of the session, however, as crude oil prices have seen further upside after skyrocketing on Monday amid concerns about the escalating conflict between the U.S. and Iran.