U.S. Treasury’s May CPI Surge of 5% is Considered

Although the latest data showed that the US inflation rate in May was higher than expected and jumped to a 13-year high, the yield on US Treasury bonds fell slightly on Thursday (10th), setting a new low since February and March this year.

MarketWatch quotes show that at the end of the New York bond market on the 10th, the yield of 2-year US Treasury bonds, which are more sensitive to the Federal Reserve’s (Fed) interest rate policy, fell 0.4 basis points to 0.151%; the yield of 10-year bonds fell 3.4 basis points to 1.458%, the lowest since March 2; the 30-year bond yield fell 1.5 basis points to 2.153%, the lowest since February 19. (Note: Treasury bond prices and yield rates are trending in opposite directions.)

In theory, rising inflation is not conducive to bond demand. Because the coupon rate of bonds is fixed, when inflation heats up, the actual purchasing power of fixed income bonds will decline. However, bond market investors seem to put aside their worries about out-of-control inflation, and instead agree with the Fed’s statement that recent price increases are only temporary.

According to a report released by the US Department of Labor on Thursday, the US Consumer Price Index (CPI) increased by 0.6% in May, which was higher than the 0.5% originally expected in the Dow Jones survey. It has also risen sharply for 4 consecutive months, the largest of which The main reason was the soaring price of used cars, which accounted for about one-third of the overall monthly increase in CPI.

The annual growth rate of CPI in May jumped from 4.2% in April to 5%, a record high since 2008, when oil prices hit an all-time high of US$150 per barrel.

In April, the annual growth rate of CPI soared to a 13-year high, which once caused a brief shock in the market. The reason is that investors worry that the Fed may reduce its monthly bond purchases by US$120 billion, and even raise interest rates earlier than expected. Under this circumstance, asset prices that have benefited from the loose financial environment in the past will lose their support.

In terms of other economic data, after seasonal adjustments, for the week ending June 5, the number of people applying for unemployment benefits for the first time fell by 9,000 to 376,000 from the previous week, continuing to hit a new low since the outbreak of the COVID-19 outbreak in March 2020, for 6 consecutive years. The week showed a decline and was slightly lower than the 370,000 expected by economists.

The above data is also closely watched by investors, because the Fed has said that before considering adjustments to monetary policy, it hopes to see a more comprehensive recovery in the labor market.

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