U.S. government bond yields fell after data showed U.S. inflation ended 2021 at multidecade highs. 

The yield on the benchmark 10-year Treasury yield was recently trading at 1.729%, according to Tradeweb, down from 1.745% at Tuesday’s close. 

Yields, which fall when bond prices rise, edged lower in early morning trading, then extended the decline after the Labor Department said the consumer-price index rose 7% in 2021 from a year earlier—the fastest pace since 1982 and the third straight month in which inflation exceeded 6%. 

The so-called core price index, which excludes the often-volatile categories of food and energy, climbed 5.5% in December from a year earlier, the highest rate since 1991.

Some analysts said the move may have stemmed from investors repositioning after the data didn’t shift expectations for the pace of Federal Reserve interest-rate increases in coming months. 

“There is a strong argument to be made that investors were positioned for a more dramatic response,” and began covering bets against Treasurys after the data, wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note to clients. 

Bond yields climbed sharply to start the year, lifted by expectations the Fed will begin raising rates as soon as March to fight inflation, before stabilizing in recent sessions. During his Senate confirmation hearing Tuesday, Fed Chairman

Jerome Powell

called high inflation a “severe threat” to a full economic recovery and signaled the central bank was preparing to raise rates because the economy no longer needed emergency support.

Investors that were planning on buying bonds this week may have waited until after the CPI data were released, given that previous reports have been followed by notable market reactions, said

Jim Vogel,

interest-rate strategist at FHN Financial.

“As soon as [the CPI data] came out and it was not deadly, we may have seen a surge of pent-up demand for Treasurys,” he said.

On Wednesday, the Treasury Department sold $36 billion worth of 10-year Treasury notes at a yield of 1.723%. Investors and dealers submitted bids totaling 2.51 times the amount of debt sold at Wednesday’s auction, slightly above recent averages. Above-average bidding is usually a sign of robust appetite for the debt.

In a confirmation hearing for his second term as Federal Reserve chairman, Jerome Powell said the central bank would use its tools to tamp down inflation. Photo: Graeme Jennings/Press Pool

Write to Sebastian Pellejero at [email protected]

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