Treasury market inflation expectations slipped from this year’s high before a report economists said will show the Federal Reserve’s preferred gauge of price increases slowed last month.
The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 1.58 percentage points. It’s down from 1.67 set a week ago and compares with the central bank’s target of 2 percent.
“Inflation is still under control,” said Kim Youngsung, the head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which has $12.8 billion in assets. “There’s still a lot of demand” for Treasuries, he said.
U.S. 10-year note yields rose one basis point to 1.91 percent as of 10:47 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent note due in February 2026 was 97 13/32.
Trading is scheduled to stop at 3 p.m. in Japan Monday and stay shut in London for Easter Monday, according to the Securities Industry and Financial Markets Association. The market will open as usual in the U.S.
Ten-year yields will probably rise past 2 percent toward the end of 2016, and inflation will approach the Fed’s target as oil recovers from a two-year rout, according to Kim. U.S. securities will draw demand from investors seeking alternatives to negative interest rates in Europe and Japan, he said.
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The TIPS gauge on inflation expectations had been rising through the second half of February and March, only to reverse course last week.
The Fed’s preferred inflation gauge rose 1 percent in February, versus 1.3 percent in January, according to a Bloomberg survey of economists before the report Monday. Gains in personal spending and income also slowed, based on the responses.
Figures on April 1 will show average hourly earnings, another inflation barometer, held at 2.2 percent in March from the year before, the surveys project. It’s the slowest pace since June.
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