Treasury yields pull back ahead of economic data

Treasury yields were mostly lower early Friday as investors awaited data on U.S. consumer sentiment, though long-dated maturities were on track for a weekly rise after data this week showed some easing of inflation pressures.

What yields are doing
  • The yield on the 2-year Treasury note

    fell to 3.195% from 3.227% at 3 p.m. Eastern on Thursday.

  • The 10-year Treasury yield

    fell to 2.871% compared with 2.886% Thursday afternoon.

  • The 30-year Treasury bond

    yielded 3.144% versus 3.173% late Thursday.

What’s driving the market

Yields at the long end of the curve rose solidly on Thursday after the U.S. producer-price index saw a 0.5% monthly decline in July. In year-over-year terms, the headline PPI was up 9.8% in July, down from 11.3% in the prior month. Core prices were up 5.8% from a year earlier, down from 6.4% in June.

A day earlier, the annual headline inflation rate for the U.S. consumer-price index for July slowed to 8.5%, down from 9.1% in June and below the 8.7% predicted by economists.

A preliminary easing of inflation pressures was boosting hopes that the Federal Reserve would not need to raise interest rates as aggressively as feared, potentially leaving room for policy makers to rein in still red-hot inflation without sending the economy into recession. The inversion of the 2-year/10-year yield spread — seen as a usually reliable recession warning signal if sustained — remained in place but narrowed as long-dated yields rose more sharply than short-dated yields, which are more sensitive to expectations of Federal Reserve rate moves.

A July import-price index is set for release at 8:30 a.m. The University of Michigan’s preliminary August reading of its consumer sentiment index is due at 10 a.m.

What analysts say

“10-year yields managed to back up to 2.90% overnight — a level we’ve been tracking as a potential buying opportunity. For the time being, this appears to be the case; although today’s session will be a litmus test for this level and one that, if held, will take a revisit of 3.0% 10s off the table for the balance of August,” wrote Ian Lyngen and Benjamin Jeffery, rates strategists at BMO Capital Markets, in a note.

“The most relevant report of the session will be with 5-10 year inflation figures contained in the University of Michigan’s survey results. Expectations are for a decline to 2.8% in August from 2.9% in July,” they wrote. “Since it’s data for the current month, any further moderation in consumers’ inflation outlook will be constructive for bonds.”

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