US Treasury yields edged higher on Thursday as investors analyzed the latest inflation data and looked ahead to upcoming economic reports.
The movement in yields reflects market anticipation of potential policy decisions from the Federal Reserve, which is set to hold its final meeting of the year next week.
As of 4:20 a.m. ET, the yield on the 10-year Treasury note rose by nearly three basis points to 4.3%. Meanwhile, the 2-year Treasury yield increased by more than one basis point to 4.17%. Yields for other maturities also saw slight increases:
- The 6-month Treasury yield rose by 2.5 basis points to 4.355%.
- The 1-year Treasury yield climbed 4 basis points to 4.248%.
- The 30-year Treasury yield was up 3 basis points to 4.508%.
A basis point is equal to 0.01%, and Treasury yields move inversely to bond prices. The uptick in yields suggests that investors are reassessing the outlook for inflation, interest rates, and economic growth.
The latest inflation figures were released on Wednesday, with the US Bureau of Labor Statistics reporting a 12-month Consumer Price Index (CPI) inflation rate of 2.7%, alongside a 0.3% monthly increase for November. Core inflation, which excludes volatile food and energy prices, was also reported at 3.3% annually and 0.3% monthly.
These numbers were in line with consensus estimates from economists polled by Dow Jones, offering little in the way of surprises. Core inflation, in particular, is a key metric for the Federal Reserve as it evaluates monetary policy adjustments.
The inflation data arrives just ahead of the Federal Reserve’s final policy meeting for the year, where a rate cut decision is expected. Traders are now pricing in a 99% probability of a quarter-point rate cut, according to the CME FedWatch tool.
Whitney Watson, global co-head and co-chief investment officer for fixed income at Goldman Sachs Asset Management, noted that the core inflation figures pave the way for a rate cut.
“Following today’s data, the Fed will depart for the holiday break still confident in the disinflation process, and we think it remains on course for further gradual easing in the new year,” Watson said.
However, Fed officials are currently in a “blackout period,” meaning they are restricted from making public comments ahead of the central bank’s policy meeting. As a result, markets have little guidance from policymakers in the final days before the rate decision.
In addition to monitoring Treasury yields and inflation data, investors are awaiting further key economic reports. The Producer Price Index (PPI) for November is set to be released on Thursday, with economists expecting a 0.2% increase on a monthly basis. The weekly jobless claims report, a closely watched indicator of labor market health, is also due.
These reports will provide additional insight into the state of the economy and may influence the Federal Reserve’s approach to rate cuts. While many expect a December cut, there is some uncertainty around future cuts, with indications that the Fed may pause in January to assess the impact of previous rate adjustments.
With input from CNBC.
