U.S. Treasury yields inched lower on Thursday after the latest inflation data was in line with predictions.
The 10-year Treasury yield fell nearly 4 basis points to 4.236%. The yield on the 2-year Treasury declined almost 2 basis points to 4.629%.
Yields and prices have an inverted relationship and one basis point equals 0.01%.
January’s personal consumption expenditures report released Thursday morning matched economist expectations. Headline PCE came in at 0.3% month over month and 2.4% on an annualized basis. Excluding volatile food and energy costs, the PCE increased 0.4% in the month and 2.8% from a year prior.
Yields were marginally higher immediately after the PCE index numbers were released before pulling back.
The PCE is the Federal Reserve’s favored inflation gauge, meaning investors were closely watching the data for clues into the future path of monetary policy. But the print came as “no surprise” to Damian McIntyre, portfolio manager at Federated Hermes, following consumer and producer price index releases earlier in the month.
“Inflation continues to fall gradually, while economic growth is strong and the consumer is healthy,” McIntyre said. “Higher-for-longer rates will likely stay with us until summer.”
Expectations for interest rates have already moved to later in the year, with markets now widely expecting the first cut to take place in June rather than the March date that was expected at the start of the year.
New York Federal Reserve President John Williams on Wednesday said a lot of progress had been made on inflation, but more work needed to be done to reach the Fed’s 2% target.
His comments echoed the sentiment conveyed by various Fed officials in recent months and weeks, who have repeatedly said their decision-making would be data-led and they were still looking for more evidence of inflation falling sustainably before cutting rates.