U. S. Treasury yields were on a rollercoaster ride Wednesday as traders sifted through lighter-than-expected inflation figures for August while looking ahead to the upcoming September jobs report. The yield on the 2-year Treasury note dropped more than 6 basis points to 4.827%. Meanwhile, the 10-year Treasury yield climbed 1 basis point to 5.268%. It managed to recover after an earlier dip. This benchmark yield is now flirting with levels not seen since 2007. Over on the 30-year Treasury bond, yields rose nearly 3 basis points to 5.623%, inching toward heights last reached in 2002.
Consumer prices in August rose less than anticipated, compared to the previous year. The personal consumption expenditures (PCE) price index increased by a seasonally adjusted 0.3% last month, tallying a 12-month gain of 3.4%. Economists polled by Dow Jones had expected a 0.3% monthly increase and a 3.7% annual rise. Christopher Rupkey, chief economist at FWDBONDS, noted that inflationary pressures weren't as severe as markets had predicted. This prompted bond yields to shift as investors reassessed how many Federal Reserve rate hikes are needed to bring inflation back to target levels. Excluding food and energy, the core PCE rose 0.2% in August, setting the annual core rate at 3%. Forecasts had pegged these figures at 0.3% and 3.3%, respectively.
The Federal Reserve tracks the headline PCE number, but officials often consider the core reading to be a more reliable indicator of long-term inflation trends. The encouraging inflation data came on the heels of recent Federal Reserve statements, which have altered expectations for monetary policy. Earlier in the month, traders had placed more than an 80% chance on a quarter-point rate hike in October. However, after Wednesday's data, those odds fell to about 37%. The next anticipated increase has now shifted to December, according to the CME Group's FedWatch tool.
Initially, yields fell in response to the inflation data, but they later edged up as traders turned their focus to the forthcoming September U. S. jobs report, set for release on Friday at 8:30 a.m. ET. Economists are forecasting the addition of 84,000 jobs this month. If Friday's numbers surpass expectations, much like Wednesday's ADP private payrolls report did, it could trigger another rise in yields.
