US Treasury Bond Prices Rise as PCE Price Index Shows Modest Increase
Yonhap Infomax US Treasury 10-year Yield Tick Chart
By Sunyoung Jeong
New York, Yonhap Infomax – The price of US Treasury bonds experienced an upward trend as the US personal consumption expenditure (PCE) price index showed a modest increase. Bond buying ensued as the rise in the core PCE price index moderated.
According to the latest data from Yonhap Infomax (screen no. 6532), the 10-year Treasury bond yield in the New York bond market was trading at 4.552%, down 3.90bp from the previous trading day at 8:33 am (US Eastern Time) on the 29th.
- The 2-year yield, which is sensitive to monetary policy, decreased by 4.20bp to 5.041%.
- The yield on 30-year government bonds dropped 3.40bp to 4.695%.
The spread between 10-year and 2-year bonds widened from -49.2bp to -48.9bp on the previous trading day.
Bond market participants closely monitored the PCE price index, which is covered by the US Federal Reserve (Fed). The PCE core price index rose by 3.9% in August compared to the same month last year, indicating a lighter level of increase than the 4.2% rise in July. This uptick in the core PCE index was the lowest in two years since September 2021.
Consequently, the yield on 2-year US Treasury bonds fell to 5.02%, while the yield on 10-year US Treasury bonds dropped to 4.52%. The 30-year US Treasury yield also experienced a decline, reaching 4.65%.
Market expectations regarding the Federal Reserve’s decision on interest rates have further inclined towards a freeze. CME Group’s FedWatch tool indicates that the probability of a rate freeze in November stands at 84.7%, while expectations for a 25bp increase are at 15.3%.
Expectations for a Federal Reserve interest rate freeze in December were 66.9%, with expectations for a 25bp increase at 30.1%. The probability of a 50bp increase remains negligible at 3.0%.
Although the PCE price index released today is at its lowest level in two years, it still remains above the Federal Reserve’s target of 2%. Additionally, concerns about a federal government shutdown persist, further driving preference for safe assets in the bond market and adding pressure to bond buying.
Political tensions are escalating as a potential federal government shutdown looms. The revised budget bill for next year, encompassing the demands of the US Republican Party hardliners, has passed the House of Representatives, making a shutdown almost inevitable. Under pressure from the hardliners, Speaker of the House Kevin McCarthy has refused to introduce a temporary budget bill to the Senate to avoid a shutdown. The Senate’s interim budget plan is seen as an attempt to buy time by ensuring federal spending until November 17.
The anticipated federal government shutdown is considered a contributing factor to the expected interest rate freeze in November. Furthermore, there are concerns about difficulties in accurately determining interest rates that month due to delays in the release of employment and inflation indicators, which were originally scheduled for October.
Moreover, the possibility of a weakened US GDP growth rate following the shutdown raises concerns about a potential economic slowdown.
Experts are closely watching the easing core PCE inflation and monitoring the Federal Reserve’s stance. According to Michael Hewson, senior market analyst at CMC Markets, the inflation and US personal spending numbers today have tempered expectations of a Federal Reserve rate hike in November.
Sunyoung Jeong is a reporter for Yonhap Infomax.
(This article was published on the Infomax financial information terminal at 22:07, 2 hours earlier.)
(New York = Yonhap Infomax) Reporter Sunyoung Jeong = The price of US Treasury bonds rose.
Yonhap News Agency Infomax US Treasury 10-year yield tick chart
The US personal consumption expenditure (PCE) price index showed an upward trend, but as the rise in the core PCE price index moderated, bond buying began.
According to Yonhap Infomax (screen no. 6532), as of 8:33 am on the 29th (local time) (hereafter US Eastern Time), the 10-year Treasury bond yield in the New York bond market was trading at 4.552% , down 3.90bp from 3 o’clock on the previous trading day.
The 2-year yield, which is sensitive to monetary policy, was 5.041%, down 4.20bp from 3 o’clock the previous day.
The yield on 30-year government bonds was 4.695%, down 3.40bp since 3 o’clock the previous day.
The spread between 10-year and 2-year bonds widened from -49.2bp on the previous trading day to -48.9bp.
Government bond yields and prices are moving in opposite directions.
Bond market participants paid attention to the PCE price index, which is covered by the US Federal Reserve (Fed).
The PCE core price index rose in August by 3.9% compared to the same month last year. This was a lighter level than the 4.2% increase last July.
The increase in the core PCE index in August was the lowest in two years since September 2021.
Accordingly, the yield on 2-year US Treasury bonds fell to 5.02% during the day, and the yield on 10-year US Treasury bonds fell to 4.52%.
The 30-year US Treasury yield also fell to 4.65%.
Market expectations regarding the Federal Reserve freezing interest rates have increased further.
According to CME Group’s FedWatch tool, the probability that the Federal Reserve will freeze interest rates in November has increased to 84.7%. Expectations for a 25bp rise in the interest rate stood at 15.3%.
Expectations for a Federal Reserve interest rate freeze in December were 66.9%, and expectations for a 25bp increase were 30.1%. The probability of a 50bp increase is also reflected as negligible at 3.0%.
The PCE price index published today is the lowest in two years, but remains above the Federal Reserve’s target of 2%.
Concerns about a federal government shutdown (temporary work stoppage) also remain.
This led to some preference for safe assets in the bond market, adding pressure to bond buying.
It is known that a ‘shutdown’ is almost imminent as next year’s revised budget bill, which includes the demands of the US Republican Party hardliners, has passed the House of Representatives.
Under pressure from hardliners in the Republican Party, Speaker of the House Kevin McCarthy refused to introduce a temporary budget bill to the Senate to avoid a shutdown.
The Senate’s interim budget plan was evaluated as a bid to buy time by guaranteeing federal spending until November 17.
The federal government shutdown is a contributing factor to the November interest rate freeze.
There are ongoing comments that it may be difficult to determine interest rates correctly in November as there is a delay with employment indicators and inflation indicators which should be published in October.
In addition, there is a possibility that the US GDP growth rate will weaken following the shutdown and the economy may enter a period of slowdown.
Experts pay attention to easing core PCE inflation and the Federal Reserve’s stance.
“Inflation and US personal spending numbers today have tempered expectations of a Federal Reserve rate hike in November,” said Michael Hewson, senior market analyst at CMC Markets.
syjung@yna.co.kr
(end)
This article was published on the Infomax financial information terminal at 22:07, 2 hours earlier.
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