Treasuries Extend First Monthly Loss of 2016 on Inflation Wagers

  • Ten-year break-even rate reaches level signaling overvaluation
  • Futures show 12 percent chance that Fed raises rates in June

Treasuries declined, extending their first monthly loss of the year, as expectations for accelerating inflation kept yields higher.

Benchmark 10-year notes fell with stocks as oil was little changed. The break-even rate, a bond-market gauge of inflation expectations, rose for a second week as a measure of the indicator’s momentum known as the relative strength index reached a level considered a sign of stretched valuations.

Futures traders have pared bets on the timing of the Federal Reserve’s next interest-rate increase after officials on Wednesday left rates unchanged and signaled they’re in no rush to raise them. Policy makers said growth in household spending “has moderated” since their previous meeting while labor-market conditions have improved. A measure of core inflation tied to personal spending advanced 2.1 percent in the first quarter, a Commerce Department report showed Thursday.

“One way to look at it is that the Fed will let inflation percolate a bit more before acting on anything,” said Sean Simko, who manages $8 billion at SEI Investments Co. in Oaks, Pennsylvania.

Benchmark 10-year note yields rose one basis point, or 0.01 percentage point, to 1.83 percent as of 5 p.m in New York, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in February 2026 was 98 4/32.

Futures show traders assign a 12 percent probability that the central bank will boost borrowing costs by June, down from a 20 percent chance seen a week ago. They price in a 58 percent chance that at least one rate hike will occur this year.

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