(Bloomberg) -- Treasury market inflation expectations have slipped from this year’s high before a report that economists said will show the Fed's preferred gauge of price increases slowed last month.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of where traders see consumer prices over the life of the debt, was 1.58 percentage points. The figure has dropped from 1.67 percentage points a week ago and compares with the central bank’s target of 2%.
“Inflation is still under control,” said Kim Youngsung, head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which oversees $12.8 billion. “There’s still a lot of demand” for Treasuries, he said.
U.S. 10-year note yields were little changed at 1.91% as of 7:06 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 1.625% note due in February 2026 was 97 14/32.
Trading closed early at 3 p.m. in Japan Monday and was recommended to stay shut in London for the Easter Monday holiday, according to the Securities Industry and Financial Markets Association. Themarket operates as usual in the U.S.
Ten-year bond yields will probably rise past 2% toward the end of 2016, and inflation will approach the Fed’s target as oil recovers from a two-year rout, according to Kim. U.S. securities will draw demand from investors seeking alternatives to negative interest rates in Europe and Japan, he said.
The TIPS gauge on inflation expectations had been rising through the second half of February and March, only to reverse course last week.
The Fed’s preferred inflation gauge rose 1% in February, versus 1.3% in January, according to a Bloomberg survey of economists before the reportis published Monday. Gains in personal spending and income also slowed, based on the responses.
A report on April 1 will show average hourly earnings, another gauge of inflation, held at a 2.2% growth pace in March from a year earlier, the surveys project. It hasn’t expanded more slowly since June, when it grew an annual 2%.