Treasuries Move To The Upside As Inflation Expectations Fall

(RTTNews) - After ending yesterday's choppy session roughly flat, treasuries moved to the upside during trading on Friday.

Bond prices advanced early in the session and remained firmly positive throughout the day. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell 3.1 basis points to 4.432 percent.

The strength among treasuries came as traders digested the latest U.S. economic data, including a report from the University of Michigan showing a continued decrease by consumer inflation expectations.

The report said year-ahead inflation expectations fell for a second straight month, plunging to 4.4 percent in July from 5.0 percent in June.

Long-run inflation expectations receded for the third consecutive month, falling to 3.6 percent in July from 4.0 percent in June.

"Inflation expectation is an important factor for the Fed and according to this report, the trajectory looks encouraging," said Jeffrey Roach, Chief Economist for LPL Financial.

The University of Michigan also said its consumer sentiment index climbed to 61.8 in July after surging to 60.7 in June. Economists had expected the index to rise to 61.5.

With the slightly bigger than expected increase, the consumer sentiment index reached its highest level since hitting 64.7 in February.

A separate report released by the Commerce Department showed new residential construction in the U.S. rebounded by more than expected in the month of June.

The Commerce Department said housing starts surged by 4.6 percent to an annual rate of 1.321 million in June after plunging by 9.7 percent to a revised rate of 1.263 million in May.

Economists had expected housing starts to jump by 3.5 percent to an annual rate of 1.300 million from the 1.256 million originally reported for the previous month.

The bigger than expected rebound by housing starts came as a spike by multi-family starts more than offset a steep drop by single-family starts.

The U.S. economic calendar for next week is relatively quiet, but traders are still likely to keep an eye on reports on new and existing home sales and durable goods orders.