Treasuries Advance as Collapse in Oil Prices Dims Inflation View

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Treasuries rose for the first time in three days as a drop in crude-oil prices to the lowest level since March sent inflation expectations tumbling, stoking demand for government debt.

Longer-term securities led gains as the outlook for inflation dropped to the least in almost five months. The decline further complicates the Federal Reserve’s quest to raise interest rates before year-end as inflation expectations decline while the employment picture strengthens. The monthly U.S. employment report Friday is forecast to show job gains of 225,000, based on a Bloomberg survey of analysts.

“There’s still very little inflation,” said Thomas di Galoma, head of fixed-income rates and credit at ED&F Man Capital Markets in New York. “We’ve been following the slide in oil. There’s still uncertainty on whether or not the Fed raises rates.”

The Treasury 10-year yield fell five basis points, or 0.05 percentage point, to 2.22 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data. The benchmark 2.125 percent note maturing in May 2025 rose 13/32, or $4.06 per $1,000 face amount, to 99 1/8.

The difference between yields on 10-year inflation indexed securities and nominal equivalents, a gauge for inflation expectations during the next decade dropped to 1.67 percentage points, reaching the least since March.

West Texas Intermediate Crude for September delivery fell to as low as $44.20 in New York, the lowest level since March.