U.S. Government bonds slump on higher risk appetite

The U.S. Treasuries slumped Wednesday as investors moved away from the safe-haven buying amid gains in riskier assets including equities and crude oil.

The yield on the benchmark 10-year Treasury note rose 1 basis point to 1.75 percent and the yield on short-term 2-year note also climbed 1/2 basis point to 0.807 percent by 12:30 GMT.

The September US CPI report revealed a 0.3 percent m/m reading, versus the unrevised 0.2 percent m/m result that occurred in August, in line with expectations for a +0.3 percent m/m result. On an annual basis, it climbed 1.5 percent y/y, from the previous reading of 1.1 percent.

Overall, the headline found upward pressure from an increase in owners' equivalent rent 0.4 percent m/m, alongside a 2.9 percent m/m result from energy prices. Despite the overall dampness seen in recent months, we expect a gradual pick-up in inflation readings will be seen in the months ahead (as suggested by headline y/y gains). However, we are unlikely to see a substantial move towards the Fed's 2 percent objective until we see greater traction from wage pressures.

Moreover, crude oil prices clawed back minor gains in early Asia trade Tuesday following an overnight decline but trading is expected to be muted now that the market has priced in a potential production cut. The International benchmark Brent futures rose 1.60 percent to $52.48 and West Texas Intermediate (WTI) jumped 1.07 percent to $50.83 by 12:00 GMT.

In addition, the Federal Reserve Chair Janet Yellen indicated that the Fed may need to promote a “high-pressure” economy in order to fully recover. Yellen added that increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending, especially if accompanied by reduced uncertainty about future prospects.

Fed’s Yellen contended that a tight labour market might draw in potential workers who would otherwise sit on the sidelines and encourage job-to-job transitions that could also lead to more efficient - and, hence, more productive - job matches. Yellen furthered that strong demand could potentially yield significant productivity.

Meanwhile, the S&P 500 Futures traded 0.16 percent higher at 2,135.25 by 12:30 GMT.