Treasury yields move higher ahead of U.S. inflation indicator

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Treasury yields rose Friday ahead of the release of the U.S. personal consumption expenditure price index, the Federal Reserve’s preferred inflation indicator.

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

    was at 4.281%, up from 4.263% at 3 p.m. Eastern on Thursday. Yields and debt prices move opposite each other.

  • The 10-year Treasury note

    yielded 3.711% versus 3.669% Thursday afternoon.

  • The yield on the 30-year Treasury bond

    was 3.778%, up from 3.722% late Thursday.

Market drivers

Short-dated yields rose 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, analysts said, underlining fears the economy could tip into recession.

The November PCE price index is set for release at 8:30 a.m. Eastern. Fed policy makers see the core PCE reading, which strips out volatile food and energy costs, as the most reliable gauge of inflation. Economists surveyed by The Wall Street Journal, on average, look for core PCE to show a 0.2% monthly rise, slowing the year-over-year rate to 4.6% from 5% in October.

November durable-goods orders data is also due at 8:30 a.m., while the University of Michigan’s latest consumer sentiment reading for December is set for release at 10 am. along with figures on November new-home sales.

What analysts say

“Today’s data calendar offers a few tradable releases including personal spending/income, core-PCE, and durable goods. That said, the early close as well as the limited participation (and conviction) suggests that any price action between now and the new year will need to be ratified during the first two weeks of January,” said Ian Lyngen, rates strategist at BMO Capital Markets, in a note.

“While typically we might be of the mind to dismiss any price action during the final week of the year out of hand, given where the Fed is in its hiking campaign and investors’ collective unwillingness to fade any sizable move, we’re wary of the prospects for a low-liquidity repricing to have more staying power than it might typically possess,” he said.

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