Bond Report: Treasurys stabilize as traders brace for retail sales, inflation data

Treasury yields were little changed ahead of two key pieces of data: retail sales and consumer-price inflation. Both could offer investors clues on the near-term direction of the economy and provide further guidance for the Federal Reserve’s monetary-policy plan.

What are Treasury yields doing?

The 2-year note yield

TMUBMUSD02Y, +0.84%

barely budged from 1.517%, it settled on late Thursday. The 10-year note yield

TMUBMUSD10Y, +0.50%

 edged higher to 2.331%, compared with 2.323%, while the 30-year bond yield

TMUBMUSD30Y, +0.27%

ticked up to 2.860%, from 2.854%. Bond prices move inversely to yields.

What is driving the market?

The early raft of economic data will give investors a snapshot of inflation and consumer spending. Investors are watching for the telltale signs of inflation in economic data, most notably the wage growth numbers in September’s jobs report. If consumer prices jolt higher, that could market participants’ expectations for a December rate increase.

Traders in the fed-futures market are pricing in an 87% change of a quarter-percentage point rate increase at the Dec. 13 policy meeting, data from CME Group shows.

What are market participants saying?

However, some strategists say investors may be placing too much emphasis on near-term wage and inflation reports because there are two months between now and the final Fed policy meeting of the year, said Jim O’Sullivan chief U.S. economist at High Frequency Economics. The Fed meets later this month but December is viewed as the most likely time for the next rate increase by the Fed.

“Two more CPI reports will be released before officials have to make a decision in December, including one in the middle of the two-day meeting. Growth and labor market data, along with financial market developments, will be important as well.”

What economic data is on investors’ radar?

The consumer-price index for September, a gauge of inflation, is set to come out at 8:30 a.m. Eastern. Economists surveyed by MarketWatch are expecting a 0.6% jump from an 0.4% increase in August.

September’s retail-sales figures will be released simultaneously, with economists forecasting a 1.9% bump. Strong data could help reignite expectations that inflation will normalize.

Which central bankers are on the docket?

Friday will prove particularly busy for Fed-watchers. Boston Fed President Eric Rosengren will give opening remarks at the Boston Fed’s economic conference at 8:30 a.m. Eastern. At the same conference, Fed Gov. Jerome Powell will speak at 1 p.m. Eastern.

Chicago Fed President Charles Evans, voting member, will deliver a speech at 10:25 a.m. Eastern. Soon after, Dallas Fed President Robert Kaplan, voting member, will take part in a question-and-answer session at 11:30 a.m. Fed Chairwoman Janet Yellen will speak later on Sunday.