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UPDATE 1-U.S. TIPS breakeven rates rise on signs of price pressure
April 28, 2017 / 2:00 PM / in 8 months

UPDATE 1-U.S. TIPS breakeven rates rise on signs of price pressure

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NEW YORK, April 28 (Reuters) - Signs of growing prices and wages in the first quarter raised investors’ inflation expectations on Friday, but their outlook was tempered by news the U.S. economy grew at its weakest quarterly pace in three years.

The bond market’s barometers on inflation expectations approached their highest levels in more than two weeks in the wake of a preferred inflation measure by the Federal Reserve rebounding to the Fed’s 2 percent goal in the first quarter.

“On balance, the release should give the Fed some increased confidence that labor market slack has largely closed and inflationary pressures are gradually picking up,” said TD Securities’ macro strategist Brittany Baumann wrote in a research note.

In early trading, the 10-year inflation breakeven rate, or the yield difference between 10-year Treasury Inflation Protected Securities and regular 10-year Treasury notes, was last at 1.94 percent, up nearly 2 basis points from late on Thursday, Tradeweb and Reuters data showed. .

Earlier Friday, the U.S. Labor Department said private wages and salaries accelerated 0.8 percent in the first quarter, the largest increase in 10 years, after rising 0.5 percent in the fourth quarter.

Meanwhile, the Commerce Department said the core rate on personal consumption expenditure (PCE) grew at a 2.0 percent pace in the first quarter, compared with a 1.3 percent rate in the fourth quarter.

The solid figures on core PCE and employment costs offset a disappointing 0.7 percent annual rate in the gross domestic product in the first quarter, which was the weakest since the first quarter of 2014.

Reporting by Richard Leong; Editing by Bernadette Baum

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