Treasury yields dipped on Thursday as Wall Street digested lighter-than-expected wholesale inflation data, reinforcing expectations that the Federal Reserve may hold rates steady next month.
The yield on the 10-year Treasury note — the key benchmark for U.S. government borrowing — fell more than 7 basis points to 4.621%. The 2-year Treasury note yield, which more closely tracks short-term Fed policy, fell more than 6 basis points to 4.134%.
The producer price index, which measures what wholesalers pay for raw goods and materials, was flat month over month in July. Economists had expected an increase of 0.2%.
“Pipeline pressures at the lower stages of production are not adding to the inflation risks the consumer faces,” said Chris Rupkey, FWDBONDS chief economist.
Cooling Inflation Signals
Thursday’s print follows a tame reading on consumer inflation, with the consumer price index coming in line with expectations.
“The war on inflation has not been won, but the choices the administration’s economics team and the central bank need to make on how to deal with elevated consumer inflation will not need to be hurried,” Rupkey added. “The energy price shock from the war in Iran is not pushing up the prices of other goods and services at the moment.”
Fed Rate Outlook
Traders are looking through both reports for clues on whether the Federal Reserve will raise rates next month or keep policy steady. Fed funds futures trading currently prices in a roughly 68% chance the central bank will hold next month, according to the CME Group FedWatch tool.
The 10-year yield fell more than 7 basis points, while the 2-year yield fell more than 6 basis points. The longer-dated 30-year Treasury bond yield dipped more than 5 basis points to 5.19%.
The Bottom Line
Treasury yields fell after July wholesale inflation came in flat, easing concerns about persistent price pressures. The producer price index was unchanged month over month, below expectations. Traders are now pricing in a 68% chance the Fed will hold rates steady next month. The energy price shock from the Iran war is not spilling into other goods and services, according to economists.
