The yield on 10-year Treasury notes fell slightly as investors digested recent economic data and anticipated the upcoming inflation figures. The 2-year Treasury note also saw a slight decline. This decrease in yields came after a stronger-than-expected GDP data for the US, which showed a growth rate of 3.3% in the fourth quarter, higher than economists’ forecasts of 2%. Additionally, the core personal consumption expenditures price index, a key measure of longer-term inflation trend, rose by 2.7% on an annual basis, down from 5.9% a year ago, indicating a slowdown in inflation.
Investors are keenly observing these economic indicators to gauge when the Federal Reserve might initiate interest rate cuts. Paul Ashworth, chief North America economist at Capital Economics, noted that while the GDP growth surpassed expectations, underlying inflation continued to slow, demonstrating an annualized core PCE inflation running lower at 2%. Consequently, the possibility of an early spring rate cut by the Fed remains the most likely outcome. Data slated for Friday includes December’s personal consumption expenditures price index, a crucial inflation measure for the Federal Reserve. Core PCE prices are anticipated to have increased by 3% in December on a year-over-year basis, according to economists polled by Dow Jones.
The slight drop in Treasury yields reflects investors’ cautious optimism following stronger economic growth in the US and a deceleration in inflationary pressures. The anticipation of December’s personal consumption expenditures price index will provide further insights into the Federal Reserve’s impending monetary policy decisions, underlining the persistent impact of inflation metrics on bond yields and broader financial markets.
