Treasury yields end higher after U.S. inflation reading

What yields are doing

• The yield on the 2-year Treasury note
  TMUBMUSD02Y,
  4.318%
  rose 5.8 basis points to end at 4.321% at 2 p.m. The yield rose 14.1 basis points for the week. Yields and debt prices move opposite each other.

• The 10-year Treasury note
  TMUBMUSD10Y,
  3.749%
  yielded 3.746%, up 7.7 basis points Friday and 26.5 basis points for the week. The weekly rise was the largest since April, according to Dow Jones Market Data.

• The yield on the 30-year Treasury bond
  TMUBMUSD30Y,
  3.821%
  rose 9.9 basis points to 3.821%, up 28.8 basis points for the week.

Market drivers

The personal-consumption expenditures index rose just 0.1% in November, marking the fifth month in a row in which inflation eased after peaking at a 40-year high over the summer. The yearly rate of inflation, meanwhile, slowed to 5.5% in November from 6.1% in the prior month, based on the personal-consumption expenditures index. That’s the smallest increase since October 2021.

Federal Reserve policy makers view the PCE index as the best measure of inflation, particularly the core gauge that strips out volatile food and energy costs. The core index rose 0.2% last month, matching Wall Street’s forecast. Core inflation in the past 12 months relaxed to 4.7% from 5%. The core October reading was revised up to a 0.3% monthly rise from 0.2%.

Other economic data released Friday included November durable-goods orders, which showed a 2.1% fall and the University of Michigan’s latest consumer sentiment reading, which ticked higher but remains weak.

Short-dated yields had ticked higher Thursday after an upward revision to U.S. third-quarter gross domestic product data and resilient jobless benefit claims figures that underlined investor expectations the Federal Reserve will continue to raise its policy interest rate in the new year as it attempts to bring down inflation.

A weak reading from the Conference Board’s leading index, however, kept pressure on yields at the long end in Thursday’s session, analysts said, underlining fears the economy could tip into recession.

What analysts say

Slightly bearish upward revisions to PCE in October “were the biggest takeaway” from the inflation data and “set the tone for a grind higher in rates in the low liquidity preholiday session,” said Ian Lyngen, rates strategist at BMO Capital Markets, in a note.

“Personal income and spending growth both slowed in November, signaling a weaker consumer heading into the end of the year,” said Sam Millette, fixed income strategist for Commonwealth Financial Network. “Additionally the core personal-consumption expenditures (PCE) deflator was up by slightly more than expected on a year over year basis in November, although the pace of year over year inflation fell compared to October. This inflation metric is closely followed by the Fed and the deceleration was a positive sign that inflationary pressure continues to slow, even if the year over year figure came in slightly higher than expected.”