Long-term Treasurys reverse gains, push yields higher as investors weigh inflation threat

Long-term Treasurys break 4-day streak of gains

NEW YORK — Treasurys were mixed Wednesday, breaking a four-day streak of gains, following a benign report on inflation.

Long-term Treasurys reversed early gains and fell slightly in late trading, pushing yields higher. Short-term Treasurys mostly held on to recent gains.

Investors are anxious ahead of the Federal Reserve’s policy meeting next week and are looking for any indication on whether the central bank plans to keep interest rates low or potentially raise them later this year.

Treasury yields, which are closely tied to interest rates on mortgages, have been rising for several weeks as investors worry that the huge surplus of government debt hitting the market could trigger inflation. Meanwhile, the dollar has weakened and commodities continue to rise.

Some traders have been betting the Federal Reserve will have to raise interest rates by the end of the year to fight inflation. The target Fed funds rate currently stands at a range of zero to 0.25 percent.

But data released Wednesday suggested that inflation remains largely in check, which could buy the Fed more time. The Labor Department said its consumer price index rose a seasonally adjusted 0.1 percent in May, less than the 0.3 percent rise analysts had expected.

“One of the things we’ll learn in the upcoming meeting is how concerned are they about the rising Treasury yields,” said Christopher Garman, president of Garman Research, an Orinda, Calif.-based company that focuses on the high-yield bonds market.

The yield on the 10-year Treasury note — which is closely tied to rates for home mortgages and other kinds of loans — rose to 3.69 percent from 3.65 percent late Tuesday as its price fell 9/32 to 95 10/32. Last week, the 10-year yield had soared to an 8-month high of 4.01 percent.

A series of key auctions last week showing strong demand touched off a rally in Treasurys that gained momentum up until Wednesday.

More Treasury purchases by the Fed had little impact on the market Wednesday. The central bank bought $7 billion of bonds ranging from seven to 10 years in maturity. The purchases, however, were slightly less than usual, said Mike Pond, an interest-rate strategist at Barclays Capital. The Fed bought $6.45 billion of government debt on Tuesday.

The central bank this year has been buying large amounts of Treasurys and other kinds of government debt to help offset the supply entering the market and keep borrowing rates low.

The yield on the 30-year bond rose to 4.52 percent from 4.47 percent late Tuesday as its price fell 19/32 to 95 21/32.

The two-year note’s yield fell to 1.17 percent from 1.19 percent, as its price rose 1/32 to 99 14/32. The yield on the three-month Treasury bill is unchanged at 0.16 percent. Its discount was 0.17 percent.

The cost of three-month dollar loans between banks was unchanged for a second day in a row. The British Bankers’ Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — held steady at an all-time low of 0.61 percent.