US 10-Year Yield Holds Decline

The yield on the 10-year US Treasury note remained around 4.37% on Friday, hovering near seven-week lows as a benign inflation report reduced expectations for multiple Federal Reserve rate hikes this year. The latest US PCE inflation data came in broadly in line with forecasts, and although inflation remains well above the Fed's 2% target, the report eased concerns about a sharper-than-expected acceleration in price pressures. Even so, markets are pricing in an 80% chance of a Fed rate hike in December following last week's hawkish pause, while the probability of a September increase stands at around 63%. New York Fed President John Williams also said on Thursday that inflationary pressures are expected to moderate this year but remain too high.

The yield on the 10-year US Treasury note fell to below 4.40% on Thursday, the lowest in seven weeks, as lower inflation concerns limited the likelihood of multiple rate hikes by the Fed this year. The core PCE price index was softer than expected in May and the headline rate increased less than expected. The results softened pro-inflationary risks as fresh oil supply from the Middle East lowered energy prices. The US and Iran signaled progress in talks after their memorandum of understanding halted the naval blockade, and tanker flows through the Strait of Hormuz picked up. Rate futures showed that market trimmed positions that reflect more than one rate hike by the Fed this year. Still, underlying inflation gauges remained elevated and both personal spending and income beat expectations. Evidence of robust growth and labor backdrops maintained the outlook of a hike by the Fed, aligned with the hawkish pivot from the last FOMC projections.

The yield on the US 10-year Treasury note hovered around 4.4% on Thursday after falling roughly 10 basis points in the previous session to its lowest level in more than six weeks, as progress in US-Iran peace negotiations pushed oil prices back to pre-conflict levels and eased inflation concerns. Investors also continued to evaluate the outlook for Federal Reserve policy ahead of a key US inflation report that could help shape expectations for interest rates. Last week, the Fed signaled growing support for tighter monetary policy, with Chair Kevin Warsh reaffirming his commitment to bringing inflation under control. Market participants are now awaiting the latest PCE price index report, the Fed’s preferred measure of inflation. Other major releases due include final first-quarter GDP data, May personal income and preliminary durable goods orders figures, as well as weekly jobless claims for the period ending June 20.