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The policy-sensitive 2-year Treasury yield jumped on Friday, heading for its 12th straight session of advances, after the Federal Reserve’s favorite inflation gauge showed prices rising again and boosted the likelihood of a June rate hike.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.559%
jumped 8.1 basis points to 4.589% from 4.508% on Thursday. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.802%
rose 1.4 basis points to 3.828% from 3.814% late Thursday. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.969%
was 3.995%, little changed from 4.003% Thursday afternoon.
What’s driving markets
Data released on Friday showed inflation as measured by the Fed’s preferred inflation measure, the PCE price index, stuck in the 4%-5% range for April. The yearly increase in prices rose to 4.4% from 4.2% in the prior month, and the narrower core rate edged up to 4.7% from 4.6% over the past 12 months.
Fed funds futures traders boosted the likelihood that the Federal Reserve will lift rates again by another quarter of a percentage point in June, to 58.5% as of Friday morning. That’s up from 51.7% a day ago, and would take the Fed’s main benchmark rate target to between 5.25-5.5%, according to the CME FedWatch Tool. Meanwhile, the likelihood of a pause in July was seen at 50.9%.
In Friday’s other data releases, consumer spending jumped 0.8% in April — the biggest increase in three months — as Americans bought more new cars and drugs and increased outlays on services.
In debt-ceiling developments, President Joe Biden and top congressional Republican Kevin McCarthy were said to be closing in on a deal to raise the government’s $31.4 trillion debt ceiling for two years while capping spending on most items.
What analysts are saying
“Prices rose more than expected this morning, with the 10-year rising above 3.8% for the first time since February,” Peter Essele, head of portfolio management for Commonwealth Financial Network. “The rise in prices puts a June hike back in play, perhaps even greater than a quarter percent hike in a last-ditch effort by the Fed to put out the inflationary fire once and for all.”
