Treasury Bonds Rise as June CPI Pace Reflects Fed Rate Plans

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Treasury bonds rose, pushing the 30-year yield to the lowest in a week, as slow growth in inflation and the Federal Reserve’s resolve to raise interest rates gradually bolstered demand.

Holders of longer-dated securities posted the biggest weekly gain since March after Fed Chair Janet Yellen reiterated that interest-rate increases will be data-dependent. A report Friday showed inflation eked out small gains for a fifth consecutive month.

“It tells the Fed inflation remains subdued,” said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stanford, Connecticut. “Nothing should change anyone’s prospects regarding the odds for September or December,” he said, referring to a rate increase.

Treasury 30-year bond yields fell three basis points, or 0.03 percentage point, to 3.08 percent as of 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The 3 percent security due in May 2045 rose 1/2, or $5 per $1,000 face amount, to 98 3/8. The yield has dropped 11 basis points this week, the most since the period ended March 20.

Shorter-term notes fell Friday after a report showed housing starts in June rose more than forecast and building permits unexpectedly increased, adding to signs of an improving economy. Two-year note yields rose one basis point to 0.70 percent, reaching the highest level since July 2.

Yellen View

Yellen said Wednesday that central-bank officials may raise rates this year if economic growth matches up with their projections. Fed funds futures show a 33 percent chance the central bank will increase its benchmark rate at its September meeting from virtually zero, and 70 percent odds for a rise by year-end, according to data compiled by Bloomberg.

The consumer-price index climbed 0.3 percent after rising 0.4 percent in May, a Labor Department report showed Friday in Washington. Excluding food and fuel, the so-called core index climbed 0.2 percent in June after rising 0.1 percent the prior month. The index was up 1.8 percent from June 2014, after climbing 1.7 percent in the year through May.

Treasuries with maturities of one year and longer have lost 0.1 percent this year, according to the Bloomberg U.S. Treasury Bond Index. U.S. debt securities maturing in 10 years and longer are down 4.2 percent.

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