10-Year Treasury Yield Inches Higher as Market Awaits Key Personal Consumption Expenditure Report

The 10-year Treasury yield was up 1 basis point in anticipation of the Fed’s next move regarding inflation. 

The yield on the US 10-year Treasury note was marginally higher on Friday, December 23rd, as investors await critical inflation data. The markets are paying close attention to a key inflation metric for clues to the Federal Reserve’s next interest rate move.

According to reports, the 10-year Treasury yield climbed by a basis point to 3.6856%. Meanwhile, the yield on the 2-year Treasury note remained unchanged at 4.2636% as of press time.

November CPI Could Impact 10-Year Treasury Yield, Other Govt Debt Obligations

Fed yields have risen throughout the week as investors continue to ponder the chances of a recession. In addition, the capital markets remain on edge over how a recession could impact monetary policy. On Thursday, released US government data showed a third-quarter 3.2% annual rate increase in gross domestic product. This figure came in higher than a 2.9% previous estimate after the economy contracted 0.6% during the second quarter.

The Bureau of Economic Analysis will report November’s personal consumption expenditure on Friday morning. This report is the Federal Reserve’s preferred measure of inflation. The core personal consumption expenditures price index (CPI) is expected to have increased by 0.2% last month. This figure, which excludes food and energy prices, also marks the same increase seen in October. Investors, market analysts, and observers currently view the personal consumption expenditures price index as a helpful barometer for US inflation.

Sustained Fed Battle to Curtail Inflation

Throughout the year, the Fed has continuously hiked interest rates to rein in sky-high inflation. The US central bank previously increased rates by 75 basis points on four consecutive occasions before deciding to cut back. The reduction is due to fears that the string of steep rate hikes could inadvertently bring about a recession. Furthermore, key data from October and November also suggested that inflation could be waning, thereby calling for reduced rate hikes.

In late November, the Federal Open Market Committee released minutes from its fiscal meeting, which suggested a hike slowdown. Part of the minutes read:

“A number of participants observed that, as monetary policy approached a stance that was sufficiently restrictive to achieve the Committee’s goals, it would become appropriate to slow the pace of increase in the target range for the federal funds rate.”

Around the same time, Fed Chair Jerome Powell also favored a 50 basis points increase for December. As Powell put it at the time:

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.”

On December 14th, the Federal Reserve increased its interest rate to between 4.25% and 4.5%, marking the highest level in 15 years. In addition, the FOMC suggested maintaining higher rates throughout the next year until 2024. According to the fiscal Committee, its projected terminal rate or point for ending the hikes is 5.1%. Furthermore, Powell observed that although optics regarding declining inflation remain positive, “it will take substantially more evidence” to be sure.

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Tolu Ajiboye

Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge.
When he’s not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.

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