Most Treasury yields were lower Friday morning after the release of data showing that U.S. consumer sentiment has risen this month but remained mired near an all-time low.
What yields are doing
- The yield on the 2-year Treasury note TMUBMUSD02Y, 3.248% rose to 3.24% from 3.227% at 3 p.m. Eastern on Thursday.
- The 10-year Treasury yield TMUBMUSD10Y, 2.858% fell to 2.837% compared with 2.886% Thursday afternoon.
- The 30-year Treasury bond TMUBMUSD30Y, 3.132% yielded 3.12% versus 3.173% late Thursday.
What’s driving the market
Data showed falling gas prices have helped to improve the public’s mood, with U.S. consumer sentiment rising to 55.1 in August from 51.5 in July and one-year inflation expectations dropping to 5% this month from 5.2% last month, based on a University of Michigan survey. Meanwhile, U.S. import prices declined in July for the first time this year, by 1.4%.
Sentiment in some parts of the financial market has shifted toward the view that the Federal Reserve might have an opening to engineer a soft landing in the economy, following signs this week that inflation could be easing. Yet inflation remains so high that bond traders have dismissed the stock market’s recent rally and are still signaling the possibility of an economic downturn.
Yields at the long end of the curve rose sharply on Thursday even though the U.S. producer-price index saw a 0.5% monthly decline in July, reflecting market expectations that the Fed will still need to raise interest rates this year even if at a slower pace. In year-over-year terms, the headline PPI was up 9.8% in July, down from 11.3% in the prior month. Core prices were up 5.8% from a year earlier, down from 6.4% in June.
A day earlier, the annual headline inflation rate for the U.S. consumer-price index for July slowed to 8.5%, down from 9.1% in June and below the 8.7% predicted by economists.
The improving inflation figures boosted some hopes that the Federal Reserve would not need to raise interest rates as aggressively as feared, potentially leaving room for policy makers to rein in still red-hot inflation without sending the economy into recession. The inversion of the 2-year/10-year yield spread — seen as a usually reliable recession warning signal if sustained — remained in place, but narrowed as long-dated yields rose more sharply than short-dated yields, which are more sensitive to expectations of Federal Reserve rate moves.
What analysts say
“10-year yields managed to back up to 2.90% overnight — a level we’ve been tracking as a potential buying opportunity. For the time being, this appears to be the case; although today’s session will be a litmus test for this level and one that, if held, will take a revisit of 3.0% 10s off the table for the balance of August,” wrote Ian Lyngen and Benjamin Jeffery, rates strategists at BMO Capital Markets, in a note.