Treasury yields reversed gear on Friday and fell across the board in morning trading after data showed the Federal Reserve’s preferred inflation gauge easing on an annual basis to the slowest pace in almost two years.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.916%
was 4.904%, down 3.5 basis points from 4.939% on Thursday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.971%
was 3.992%, down 1.9 basis points from 4.011% Thursday afternoon. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
4.031%
was 4.051%, down less than 1 basis point from 4.058% late Thursday.
What’s driving markets
In data released on Friday, the PCE price index, which is the Fed’s preferred measure of inflation, rose by a mild 0.2% in June — matching the expectations of economists polled by The Wall Street Journal.
The increase in prices over the past year slowed to 3% from 3.8% and touched the lowest level since October 2021, the government said Friday. In addition, the narrower rate of core inflation, which kicks out food and energy, slowed to 4.1% from 4.6% over the past year; that’s still far above the Fed’s 2% target.
The employment cost index, a crucial measure of wages, moderated in the second quarter, rising by 1% versus 1.2% in the first quarter.
Thursday had seen a big upward move in yields after strong U.S. economic data, a report that the Bank of Japan would be modifying its yield-control program, and a poorly received auction in 7-year notes. The 10-year rate jumped 16.1 basis points on Thursday, the most since Sept. 26, 2022.
See: Ueda says flexible yield curve control doesn’t change Bank of Japan’s easy stance
See also: Bank of Japan decision: Here’s what analysts are saying after yield curve control move
What analysts are saying
“Friday’s PCE suggests that inflation is continuing to decelerate, but it remains firmly above the Fed’s 2% target, which suggests that the Fed still has more work to do and may continue raising interest rates. The potential for additional tightening, after over a year of steep rate hikes, risks slowing the economy,” said Richard Saperstein, chief investment officer of Treasury Partners in New York, which has $9 billion in assets under management.
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