Treasury Yield Edges Up as Markets Weigh Inflation and Fed Outlook

The yield on the 10-year US Treasury note edged up to 4.65% on Wednesday as investors assessed fresh economic data for clues on the Federal Reserve’s interest-rate path. The PCE price index rose 0.2% in July, above expectations for a 0.1% increase, while annual inflation reached 3.7% versus forecasts of 3.6%. Core PCE rose 0.2% month-over-month and 3.3% year-over-year, both in line with expectations. Consumer spending and income also came in slightly above forecasts. Separate data showed US GDP grew 1.5% in Q2 as initially estimated, while durable goods orders rose 1.1% in July, beating expectations of 0.5%. Gains in Treasury yields were capped by a third consecutive decline in oil prices, easing concerns over near-term inflation. Meanwhile, investors continued to debate the Treasury’s plan to at least double its buybacks, with billionaire investor Stanley Druckenmiller arguing the move undermines the Treasury market’s credibility and misses an opportunity for meaningful debt reform.

The yield on the 10-year US Treasury note held around 4.64% on Wednesday after dropping nearly 10 basis points in the previous session, as falling oil prices eased inflation concerns and investors continued to assess the implications of the Treasury Department’s expanded debt buybacks. Oil prices declined for a third consecutive session, reducing concerns over near-term inflationary pressures. Meanwhile, market participants continued to debate the Treasury’s plan to at least double its buybacks, with investor Stanley Druckenmiller arguing that the move is undermining the Treasury market’s credibility and wasting an opportunity for meaningful debt reform. Elsewhere, investors awaited the latest US PCE price index report, the Federal Reserve’s preferred measure of inflation. The data comes ahead of Fed Chair Kevin Warsh’s speech at the annual Jackson Hole symposium on Friday, where he is not expected to provide clear guidance on the central bank’s policy decision in September.

The yield on the 10-year US Treasury note eased to 4.65% from the 20-month high of 4.75% on August 21st, as lower energy prices softened concerns of higher inflation in the near term. Oil and fuel prices eased after the US opted to tighten sanctions on Iran, refraining from more military threats. Still, longer-term yields remained sharply higher on the month. The Treasury stated it would use its general account balance to increase the buyback of long-term securities. This added to efforts to compress yields after the joint intervention on the Japanese yen by selling euros and the request for the Fed to increase the limit on its FIMA facility. Yields on the longer end of the curve had surged since July amid soaring debt issuance from AI companies and higher deficit spending by the federal government. Long-term yields also rose after Fed Chairman Warsh signaled that a rate hike may not be his preferred tool to combat higher inflation, increasing the stakes of his speech in Jackson Hole.