US 10-Year Yield Eases Ahead of PPI Data

The yield on the 10-year US Treasury note eased to around 4.68% on Thursday as investors looked ahead to July’s producer inflation report for further clues on recent price trends. Data released Wednesday showed US consumer inflation slowed for a second consecutive month to 3.4% in July, while rising just 0.1% from the previous month. Markets now see around a 40% chance of a 25 basis point rate hike from the Federal Reserve in September, down from nearly 50% a day earlier. Meanwhile, the government sold 10-year notes at a yield of 4.683%, the most since the global financial crisis. Inflation above the Federal Reserve’s target and widening budget deficits have contributed to elevated long-term yields, with investors demanding greater compensation to finance the US government.

The yield on the 10-year US Treasury note was at 4.65%, extending the pullback from last session after the US inflation rate refrained from surpassing expectations. Both headline and core inflation rates eased as expected in July, removing some of the pressure on FOMC to raise interest rates next month. Gauges of underlying consumer prices had risen sharply this year after the outbreak of war in Iran lifted energy costs and halted key supply chains. This prompted multiple FOMC members to deliver hawkish dissents in the Fed's last rate hold, with more policymakers signaling hawkish reaction functions in speeches since. Still, elevated energy prices were still being transmitted to price indices as President Trump hardened his stance on Iran, prompting Tehran to dismiss an imminent suspension on blockades that prevent trade. Concerns that the Fed will not raise rates to combat inflation had already drive long-yields to surge earlier in the month.

The yield on the US 10-year Treasury note eased to around 4.68% on Wednesday, extending its decline into a second session as investors positioned ahead of key inflation data that could provide fresh guidance on the Federal Reserve’s policy outlook. The consumer price index is due later today, with producer inflation figures scheduled for Thursday. Markets remain split over the prospect of a 25-basis-point Fed rate hike in September after the central bank left rates unchanged in July, while firmer oil prices continue to bolster expectations for a hawkish stance. On Tuesday, Chicago Fed President Austan Goolsbee said policymakers remain more focused on the risk of persistently elevated inflation than potential weakness in the labor market. Meanwhile, investors continued to monitor prospects for a US-Iran agreement to reopen the Strait of Hormuz after Pakistan’s defense minister said Washington and Tehran are “close to some sort of arrangement.”