Treasury Yields Decline Post Stable CPI Data

On Thursday, US financial markets saw a decline in government bond yields. This was in response to mixed economic data that highlighted stable inflation and a rise in unemployment claims. This news has fueled expectations that the Federal Reserve will cut interest rates at its upcoming meeting.

The yield on the 10-year US Treasury note fell to 4.012% before stabilizing at 4.028%. Meanwhile, the 30-year bond yield rose to 4.688%, and the 2-year bond yield dropped to 3.515%. It’s important to remember that bond prices and yields have an inverse relationship, so when yields fall, bond prices rise.

Economic Data

According to data, the US Consumer Price Index (CPI) increased by 0.4% month-over-month in August, with the annual inflation rate reaching 2.9%. This aligns with economists’ expectations.

However, the unemployment data was a surprise. Weekly unemployment claims rose to 263,000, which is higher than the forecast of 235,000. This increase of 27,000 from the previous week marks the highest level in four years.

The Federal Reserve and Rate Cuts
In light of this data, investors have increased their bets on an interest rate cut at the Federal Reserve’s meeting scheduled for September 17.

Markets are now pricing in a 100% probability of a 25 basis point cut at this September meeting, with a 12% chance of a larger 50 basis point cut. Markets also anticipate an additional cut in October. This could bring the total expected cuts by the end of the year to 73 basis points, lowering the federal funds rate from 4.33% to 3.60%.