Treasury yields fall as PCE inflation cools; 2-year rate logs 4-week skid
By Joy Wiltermuth and Steve Goldstein
Bond yields fell Friday after the Federal Reserve's preferred inflation gauge came in cooler than anticipated
Bond yields ended Friday lower as traders digested PCE inflation data for August that came in cooler than Wall Street anticipated.
The Federal Reserve's preferred gauge pegged inflation at 2.2% on a yearly basis, a low last seen three-and-a-half years ago. The policy-sensitive 2-year yield posted a fourth straight weekly decline.
What's happening
The yield on the 2-year Treasury BX:TMUBMUSD02Y was 3.562%, down 5.8 basis points and logging its fourth straight week of declines, according to Dow Jones Market Data. The yield on the 10-year Treasury BX:TMUBMUSD10Y was 3.751%, down 3.7 basis points and rising for its second straight week.The yield on the 30-year Treasury BX:TMUBMUSD30Y was 4.099%, down 2.3 basis points and also up for its second week in a row.
What's driving markets
Short-term Treasury yields fell in the past week, while 10- and 30-year yields rose.
The steepening of the Treasury yield curve comes as the August personal-consumption expenditures price index on Friday showed a 0.1% monthly rise, but a modest 0.1% gain for the core measure that excludes food and energy. Wall Street was expecting a 0.2% rise for the core reading.
"The latest PCE inflation data shows that inflation continues to moderate, which allows the Fed to focus on risks to employment and continue easing rates," Sonu Varghese, global macro strategist at Carson Group, said in emailed comments.
The odds of the Fed cutting interest rates by another 50 basis points in November were moving up modestly Friday morning, with traders putting the chances at 54.8%, versus 45.2% for an ordinary 25-basis-point cut, according to the CME FedWatch Tool. A day ago, the odds were roughly even.
On Thursday, there was data showing an unexpectedly low weekly jobless-claims reading, as an auction of 7-year notes met solid demand.
But on Friday, the focus was squarely on inflation and spending.
"The PCE number is very close to the Fed target. Mission accomplished," said Scott Helfstein, head of investment strategy at Global X, in emailed comments. "Inflation continues to slow, but both personal income and spending came in a little below expectations. That is likely to stoke concerns about a slowing economy."
-Joy Wiltermuth -Steve Goldstein
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09-27-24 1616ET
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