U.S. Treasury yields mixed ahead of inflation report

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Treasury yields were trading mixed ahead of the release of the Federal Reserve’s preferred inflation gauge, the personal-​consumption expenditures, or PCE.

How Treasurys are performing?
  • The 10-year Treasury note yields
    1.488%, versus 1.486% at 3 p.m. Eastern Time on Thursday.

  • The 30-year Treasury bond rate
    was at 2.086%, compared with 2.095% a day ago.

  • The 2-year Treasury note
    was yielding 0.270%, from 0.266% on Thursday.

Fixed-income drivers

Amid a worry about surging inflation, Treasury investors will be closely watching the PCE for signs that parts of the economy are overheating in the recovery phase from COVID.

Read: Consumers are feeling the pinch from higher inflation and they don’t like it

Also: Why aren’t Americans happier about the economy? They are paying higher prices for almost everything

The Commerce Department will release its PCE report at 8:30 a.m. ET, and economists are expecting the measure to show a rise of 3.4% in May from a year earlier. The market also is expecting to see a month-over-month increase by 0.6% from April to May, based on a survey of economists polled by Dow Jones and MarketWatch.

The Fed has said that it views PCE as its preferred metric because because it is believed to reflect changes in prices that the Labor Department’s consumer-price index may not. The PCE puts more weight on medical expenses and tracks both direct and indirect costs borne by consumers.

The PCE data comes after CPI data for May showed that the cost of living surged, driving the pace of inflation to a 13-year high of 5%, reflecting a broad increase in prices confronting Americans as the economy fully reopens. 

Read: Inflation is surging. How high will it go? Check out MarketWatch’s new tracker.

Meanwhile, investors are weighing the prospect of a sizable infrastructure spending bill after President Joe Biden announced that he and a bipartisan group of lawmakers had a deal on a $1 trillion infrastructure package.

Read:Infrastructure and the markets—here’s what the $1 trillion means

Investors are ready for May personal income and spending data, at the same time as PCE, with economists expecting income to fall 2.7%, while spending is expected to rise 0.4%.

Looking ahead, University of Michigan is due to release its June consumer sentiment and inflation expectations data at 10 a.m. Economists expect the gauge to tick up to 86.5 from a reading of 86.4 in May.

A number of Fed speakers are also on deck, including Cleveland Fed President Loretta Mester, who moderates a policy discussion on ‘What inclusive recovery looks like in Midwest’ at 11:35 a.m.

Boston Fed President Eric Rosengren talks about financial stability to the Official Monetary and Financial Institutions Forum’s Fedweek series at 1 p.m., and New York Fed President John Williams talks to the University of California education abroad program at 3 p.m.

What strategists are saying

“A rise in PCE inflation in May is unlikely to be a surprise to [Treasury investors] given the strong CPI data for last month,” wrote analysts at UniCredit.

“However, it will probably be enough to keep attention on inflationary pressure high. Since the beginning of this week, the 10Y UST yield has not managed to break above 1.5% and is currently trading in line with the level preceding the last [Federal Open Market Committee] meeting. On the other hand, the hawkish shift in the dot plot put pressure on shorter-dated yields, especially on the real-yield component,” the analysts wrote.

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Written by bourbiza

Bourbiza Mohamed. Writer and Political Discourse Analysis.


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