Treasuries Move Higher Following Inflation Data, Fed Minutes

After fluctuating early in the session, treasuries moved to the upside over the course of the trading day on Wednesday.

Bond prices moved higher as the morning progressed and remained firmly positive throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price fell by 3.1 basis points to 1.549 percent.

The upward move by treasuries came as report from the Labor Department showed consumer prices rose by slightly more than expected in September, but the data was not seen as likely to accelerate the Federal Reserve's tapering plans.

The Labor Department said its consumer price index climbed by 0.4 percent in September after rising by 0.3 percent in August. Economists had been expecting another 0.3 percent increase.

Excluding higher prices for food and energy, core consumer prices edged up by 0.2 percent in September after inching up by 0.1 percent in August. The uptick in core prices matched economist estimates.

The report also showed the annual rate of growth in consumer prices accelerated to 5.4 percent in September from 5.3 percent in August, while the annual rate of growth in core prices was unchanged at 4.0 percent.

Later in the day, the minutes of the Fed's September meeting outlined the central bank's plans to gradually scale back its asset purchases.

The minutes revealed participants generally agreed that a gradual tapering of asset purchases that concludes around the middle of next year would likely be appropriate if the economic recovery remained broadly on track.

Participants noted that if a decision to begin tapering purchases occurred at the Fed's next meeting in early November, the process of tapering could begin with the monthly purchase calendars beginning in either mid-November or mid-December.

The meeting also included a discussion on how slowing the current rate of bond purchases of $120 billion per month might proceed.

The minutes highlighted an "illustrative path" that features monthly reductions of $10 billion in the purchase of Treasury securities and $5 billion in the purchase of agency mortgage-backed securities.

Participants noted that the Fed could adjust the pace of the moderation of its purchases if economic developments were to differ substantially from what they expected.

A note from Capital Economics said the minutes "make it clear" that the Fed will announce tapering plans at its next meeting scheduled for November 2nd and 3rd.

"The scheduled monthly reductions could, in theory, be sped up or down at a later date, but we suspect the bar to doing so will be pretty high," Capital Economics said. "The Fed will essentially be putting the taper on 'automatic pilot,' which is similar to what it did with the balance sheet run off that began in 2017."

Bond traders were also reacting to the results of the Treasury Department's auction of $24 billion worth of thirty-year bonds, which attracted slightly above average demand.

The thirty-year bond auction drew a high yield of 2.049 percent and a bid-to-cover ratio of 2.36, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.33.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

A Labor Department report on producer price inflation in the month of September may attract attention on Thursday along with the weekly jobless claims report.

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