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Treasuries Move Back To The Upside On Tame Inflation Data

Following the pullback seen in the previous session, treasuries moved back to the upside during trading on Tuesday.

Bond prices advanced in morning trading and remained firmly positive throughout the afternoon. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3 basis points to 1.818 percent.

The early strength among treasuries came after a report from the Labor Department said consumer prices in the U.S. increased by slightly less than anticipated in the month of December.

The Labor Department said its consumer price index rose by 0.2 percent in December after climbing by 0.3 percent in November. Economists had been expecting another 0.3 percent increase.

The increase in consumer prices was partly due to a jump in energy prices, which surged up by 1.4 percent in December amid a 2.8 percent jump in gasoline prices.

Excluding food and energy prices, core consumer prices inched up by 0.1 percent in December after rising by 0.2 percent in November. Core prices had been expected to rise by another 0.2 percent.

The uptick on core prices reflected higher prices for shelter and medical care as well as increases by prices for apparel, motor vehicle insurance, recreation, and new vehicles.

Meanwhile, the Labor Department said prices for used cars and trucks, household furnishings and operations, and airline fares were among those to decline.

"The more muted 0.1% rise in core consumer prices in December provides further evidence that underlying price pressures are subdued," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "With wage growth also moderating in recent months, there will be little pressure on the Fed to raise interest rates as economic growth gradually accelerates later this year."

Treasuries remained firmly positive in afternoon trading after a report from Bloomberg said tariffs on billions of dollars of Chinese goods are likely to remain in place until after the U.S. elections in November.

Citing people familiar with the matter, Bloomberg said any move to reduce the tariffs would hinge on China's compliance with the terms of a phase one trade deal set to be signed on Wednesday.

Under the phase one deal, the U.S. will scrap a new round of tariffs and cut the tariffs on $120 billion worth of Chinese goods in half to 7.5 percent, but a 25 percent tariff on $250 billion worth of Chinese imports will remain in place.

The people told Bloomberg the U.S. will not consider cutting the remaining tariffs until conducting a review no sooner than 10 months after the signing of the agreement.

Any news out of the trade deal signing is likely to attract attention on Wednesday, potentially overshadowing the Labor Department's report on producer prices.

The Federal Reserve is also scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts.

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