Treasury yields extended a rise Friday after the release of the U.S. personal consumption expenditure price index, the Federal Reserve’s preferred inflation indicator, and a raft of other economic data.
Traders will see an abbreviated session, with Sifma recommending trading in U.S. bond markets end an hour early at 2 p.m. ET. U.S. markets will be closed Monday, Dec. 26, on observance of Christmas Day, which falls on Sunday.
What yields are doing
- The yield on the 2-year Treasury note TMUBMUSD02Y,
4.318%was at 4.31%, up from 4.263% at 3 p.m. Eastern on Thursday. Yields and debt prices move opposite each other.
- The 10-year Treasury note TMUBMUSD10Y,
3.733%yielded 3.721% versus 3.669% Thursday afternoon.
- The yield on the 30-year Treasury bond TMUBMUSD30Y,
3.804%was 3.80%, up from 3.722% late Thursday.
The personal-consumption expenditures index rose just 0.1% in November, marking the fifth month in a row in which inflation eased after peaking at a 40-year high over the summer. The yearly rate of inflation, meanwhile, slowed to 5.5% in November from 6.1% in the prior month, based on the personal-consumption expenditures index. That’s the smallest increase since October 2021.
Federal Reserve policy makers view the PCE index as the best measure of inflation, particularly the core gauge that strips out volatile food and energy costs. The core index rose 0.2% last month, matching Wall Street’s forecast. Core inflation in the past 12 months relaxed to 4.7% from 5%. The core October reading was revised up to a 0.3% monthly rise from 0.2%.
Other economic data released Friday included November durable-goods orders, which showed a 2.1% fall and the University of Michigan’s latest consumer sentiment reading, which ticked higher but remains weak.
Short-dated yields had ticked higher Thursday after an upward revision to U.S. third-quarter gross domestic product data and resilient jobless benefit claims figures that underlined investor expectations the Federal Reserve will continue to raise its policy interest rate in the new year as it attempts to bring down inflation.
A weak reading from the Conference Board’s leading index, however, kept pressure on yields at the long end in Thursday’s session, analysts said, underlining fears the economy could tip into recession.
What analysts say
Treasury prices “were modestly weaker in the run-up to this morning’s data and since the release, the price action has extended marginally. The slightly bearish upward revisions to PCE in October were the biggest takeaway and have set the tone for a grind higher in rates in the low liquidity preholiday session,” said Ian Lyngen, rates strategist at BMO Capital Markets, in a note.
“Personal income and spending growth both slowed in November, signaling a weaker consumer heading into the end of the year,” said Sam Millette, Fixed Income Strategist for Commonwealth Financial Network. “Additionally the core personal consumption expenditures (PCE) deflator was up by slightly more than expected on a year over year basis in November, although the pace of year over year inflation fell compared to October. This inflation metric is closely followed by the Fed and the deacceleration was a positive sign that inflationary pressure continues to slow, even if the year over year figure came in slightly higher than expected.”
“Finally, the final reading of the University of Michigan Consumer Sentiment index showed that sentiment improved by more than expected during the month, driven by falling short term inflation expectations. 1-Year consumer inflation expectations fell to 4.4 percent during the month, which is well below the recent high of 5.4 percent that we saw earlier in the year,” he said.
“All in all the data releases painted a picture of a slowing economy heading into the end of the year, which should help support a continued deacceleration in inflation as we head into 2023.”