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Treasury Yields Fall Slightly After CPI Posts 5% Annual Increase

Source: NYSE

Treasury yields fell slightly on Thursday despite a hotter-than-expected consumer price index reading, which showed prices rose at an annual rise of 5%.

The yield on the benchmark 10-year Treasury note was off by 4 basis points at 1.44% at around 4:00 p.m. ET. The yield on the 30-year Treasury bond fell 3 basis points to 2.14%. Yields move inversely to prices.

Consumer prices for May increased at their fastest clip in nearly 13 years as inflation pressures continued to accelerate in the U.S. economy, the Labor Department reported Thursday.

Yields initially moved higher after the report but drifted lower as morning trading continued.

The consumer price index, which represents a basket including food, energy, groceries, housing costs and sales across a spectrum of goods, rose 5% year over year. Economists surveyed by Dow Jones had been expecting a gain of 4.7%. Prices increased 4.2% in April.

A separate gauge that excludes volatile food and energy prices increased 3.8%, vs the Dow Jones estimate of 3.5% for so-called core inflation.

Economists were also pointing to the surge in used car costs for the month as skewing the inflation reading. Used car and truck prices jumped more than 7%, accounting for one-third of the total increase for the month, according to the U.S. Bureau of Labor Statistics. The jump in used car prices likely reflects a temporary phenomenon related to the pandemic and auto supply.

Investors have been concerned about whether rising inflation could see the Federal Reserve taper its asset purchases or start to talk about raising interest rates. However, the Fed has emphasized that price pressures are transitory, as the economy reopens and recovers from the coronavirus pandemic.

"Are those wage pressures really broadening out? Because if they are, that could be a sign that inflation expectations are increasing," Tiffany Wilding, North American economist at PIMCO, said on "Squawk Box."

"Does this shock in prices that we're seeing now increase inflation expectations?" Wilding said. "That will sort of dictate whether this is transitory or ends up actually being more persistent."

Meanwhile, jobless claims filings fell to 376,000, about as expected by economists polled by Dow Jones.

Jobless claims are also being closely watched by investors, as the Fed has said it wants to see a fuller recovery in the labor market before it considers adjusting its monetary policy.

Auctions are due to be held Thursday for $24 billion of 30-year bonds, $40 billion of 4-week bills and $40 billion of 8-week bills.

CNBC's Thomas Franck contributed to this market report.

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