U.S 30-Year Auction High Yield Declines, Demand Lower

The U.S Treasury’s 30-year auction hit a high yield of 1.94% Wednesday, down from the 2.049% high in the previous auction. The bid to cover ratio was 2.20, from 2.36 in the previous auction as consumer inflation hits a 31-year high today.

Dealers represented 61.83% of the bids, with direct bidders at 11.22% and indirect bidders at 26.95% for a takedown, bidders took 25.23%, with direct bidders at 15.78% and indirect awarded 59%.

Stocks Dip as Bond Yields, Gold Surge After Consumer Inflation Hits 31-Year High

Stocks dip while government bond yields and the price of gold jumped after October inflation exceeded estimates, producing the largest annual consumer price gain in 31 years.

The Dow Jones Industrial Average fell 0.2% to 36,264.35, with S&P 500 down 0.2% and NASDAQ lower by 0.6%. Consumer discretionary stocks fared best while energy and technology shares struggled after midday.

However, the 10-year US Treasury yield surged 9 basis points to 1.54%. Gold climbed 1.3% to $1,855.30 per troy ounce intraday. The U.S consumer price index increased 0.9% in October following a gain of 0.4% in September, the Bureau of Labor Statistics reported. Market expectations were for an increase of 0.6%.

Consumer prices were up 6.2% year over year last month, the most since 1990, up from a 5.4% annual gain through September. Core CPI, which excludes food and energy prices, climbed 0.6% versus a consensus estimate for a 0.4% increase after a 0.2% rise in September.

October core CPI was up 4.6% year over year. Core consumer price inflation will remain above 2% throughout 2022 and 2023, according to a research note from Deutsche Bank.

This will prompt a more rapid reaction from monetary policymakers, with the Federal Reserve kicking off its rate increase cycle in December 2022 under Deutsche Bank’s baseline view, according to the note.

Financial conditions remain “incredibly” accommodative by historic standards, Deutsche Bank added. West Texas Intermediate crude oil slumped 3% to $81.64 per barrel intraday.

The Federal Reserve’s focus on above-target inflation will be a major theme as the employment side of the Fed’s mandate continues to recover. Other data to be released Wednesday include weekly jobless claims, wholesale trade, and the government’s monthly budget statement for October, the first of the new fiscal year.

A quick summary of foreign exchange action heading into Wednesday shows that EUR-USD slipped to 1.155 from 1.1593 at the Tuesday US close and 1.1586 a day earlier. Rising COVID cases in several Eurozone countries are the biggest obstacle to growth.

The European Central Bank’s relatively dovish monetary policy stance compared with the Fed and the Bank of England will cap the upside for the pair, but inflation concerns add another factor to consider even as growth forecasts are looking less optimistic due to rising virus cases.

GBP-USD declined to 1.3504 from 1.3559 at the US close on Tuesday and 1.3574 a day ago. The UK data calendar is quiet Wednesday, unlike in the US, but Thursday’s first look at Q3 GDP will provide some direction for the pair.

The Bank of England and the Fed seem to be on similar wait-and-see tracks, with the BOE slightly ahead as rate hikes are expected sooner in the UK.

USD-JPY rose to 113.2006 from 112.8805 at Tuesday’s US close and 112.9579 a day ago, but it is a long way from reclaiming the 114-plus levels that it last saw last week.

Stronger-than-expected US consumer price inflation Wednesday could lift US yields further and give a further boost to the pair after a generally downward week.

USD-CAD lost ground overnight, falling to 1.2434 from 1.2443 at the Tuesday close and after hitting a high of 1.2474 in the wake of the solid US producer inflation report Tuesday morning.

A similar, perhaps even stronger, the reaction could occur if the US consumer inflation measure Wednesday is well above expectations. As with the Bank of England (BOE), the Bank of Canada is likely to lift rates well before the Fed, having already ended its bond-buying program. #U.S 30-Year Auction High Yield Declines, Demand Lower