3-13-18 7:49 AM EDT | Email Article

By Mark DeCambre, MarketWatch

U.S. government bonds stabilized on Tuesday, with yields little changed, as Wall Street awaited a key report on inflation, which could help the Federal Reserve determine the pace of future rate increases.

How are Treasurys performing?

The 10-year Treasury note yield ticked up 0.7 basis point to 2.877%, according to FactSet data. The 2-year note yield , the maturity that is the most sensitive to shifting inflation expectations, edged down 0.2 basis point to 2.262%. The 30-year bond yield , known as the long bond, added 0.6 basis point to 3.137%.

Bond prices fall as yields rise and vice versa.

What's driving government bond trading?

Wall Street is bracing for further insights on the pace of inflation in the U.S. economy, with the consumer-price index set to be released at 8:30 a.m. Eastern Time. Economists polled by MarketWatch are forecasting a gain of 0.2% for February.

Inflation readings have become a closely watched gauge of the state of the market's health over the past several weeks because rising prices and inflation can erode a bond's fixed value. Percolating inflation can also prompt the U.S. central bank to lift interest rates more aggressively than the three times that traders and strategists have penciled in for 2018.

The Fed doesn't rely solely on the CPI to determine if inflation is high enough to justify an increase in interest rates, but it plays a crucial role, along with the central bank's preferred personal-consumption expenditures inflation gauge. That indicator is showing inflation rising at 1.7% yearly clip.

Previously, inflation has been running below the Fed's 2% annual target, which has helped support buying in government paper, keeping a lid on yield gains.

A report on February jobs showed that wage growth, one measure of inflation, showed a muted pace of gains, and an amended report for wages in the previous month was reduced to a 12-month increase in pay at 2.6% from 2.8%, helping to spark a rally in the Dow Jones Industrial Average and the S&P 500 index . Those more subdued figures assuaged some jitters that hatter-than-expected inflation would cause selling in bonds, pushing yields up and causing a rise in borrowing costs to undercut appetite for stocks that have enjoyed a protracted period of ultralow rates.

Concerns about tariffs signed by President Donald Trump continue to be a concern for the broader market, with the threat that it might spark global trade wars and impede the U.S. economy in its ninth year of expansion.

Read:What to watch in the CPI report (http://www.marketwatch.com/story/what-to-watch-in-the-cpi-report-2018-03-12)

(http://www.marketwatch.com/story/what-to-watch-in-the-cpi-report-2018-03-12)And: The overheating economy could crash in 2019, this top forecaster says (http://www.marketwatch.com/story/the-overheating-economy-could-crash-in-2019-this-top-forecaster-says-2018-03-10)

What are strategists and traders saying?

"In bond markets, focus today is solely on the US CPI release, where we see the surprise risk for the core reading as being on the downside. We therefore do not expect Treasury yields to edge higher in the course of today, and euro-area bond markets should also remain well supported," wrote analysts at UniCredit in a Tuesday report.

Which other assets are in focus?

The German 10-year government bond yield were at 0.621% on Tuesday compared with 0.629% late Monday. German bonds, also known as bunds, are often viewed as a proxy for the health of the eurozone.

Meanwhile, the ICE U.S. Dollar Index was up 0.2%, while gold prices (http://www.marketwatch.com/story/gold-slips-as-dollar-firms-ahead-of-cpi-report-that-could-shift-fed-rate-hike-pace-2018-03-13) slipped, and oil prices were weaker.


(END) Dow Jones Newswires

March 13, 2018 07:49 ET (11:49 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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