US 10-Year Yield Steady Ahead of PCE Data
The 10-year US Treasury yield maintained its position above 4.17% on Friday following two consecutive days of increases. Investors turned their focus to the Personal Consumption Expenditures (PCE) price index, which serves as the Federal Reserve’s preferred measure for inflation, in search of further policy direction. On Thursday, data revealed a drop in weekly jobless claims by 14,000 to 218,000, significantly under expectations, indicating that employers remain reluctant to reduce their workforce. Additionally, revised GDP figures pointed to the economy expanding at an annualized rate of 3.8% in the second quarter, marking the fastest pace in nearly two years, driven by strong consumer spending. The market still anticipates a quarter-point reduction in interest rates by the Fed in October. However, the overall outlook for rate cuts this year has diminished to 39 basis points, down from approximately 43 basis points earlier in the week. Decreased expectations for Fed rate cuts contributed to a sharper increase in yields of shorter-term notes compared to longer-term bonds, thereby moderating the yield steepening observed this quarter.
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