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Treasury yields nudged higher Friday as investors awaited the release of a closely watched U.S. inflation gauge as well as an important measure of first-quarter labor costs.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.857%
rose to 2.872%, up from 2.862% at 3 p.m. Eastern Thursday. -
The 2-year Treasury yield
TMUBMUSD02Y,
2.674%
was at 2.686% versus 2.648% Thursday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.907%
edged up to 2.934%, compared with 2.928% late Thursday. - Through Thursday afternoon, the 10-year yield was up 53.8 basis points in April, on track for its largest monthly rise since December 2009, according to Dow Jones Market Data. The 2-year yield was up 36.4 basis points over the same stretch, while the 30-year T-bond yield had gained 48.4 basis points, set for its largest monthly rise since January 2009.
What’s driving the market?
The March personal consumption expenditures index is due at 8:30 a.m. Eastern. Economists surveyed by The Wall Street Journal expect the core PCE price index, the Federal Reserve’s preferred inflation gauge, to show a 0.3% monthly rise after a 0.4% increase in February. Year over year, the index is expected to slow to 5.3% versus 5.4% in February, remaining well above the Fed’s 2% target.
The first-quarter Employment Cost Index is also due at 8:30 a.m. and will provide a look at labor costs amid a tight jobs market that is seen helping to fuel inflation pressures. Fed chair Powell in December said a jump in the third-quarter ECI rattled policy makers.
The ECI subsequently slowed a bit, showing a 1% quarterly rise in the final three months of 2021. Economists expect the first-quarter ECI to rise to 1.1%.
Treasury yields have moved up sharply in 2022 as inflation has continued to run hot, with the consumer price index hitting a level last seen more than four decades ago. The Fed, which delivered a quarter percentage point interest rate increase in March, is expected to deliver a rare half-point hike to the fed-funds rate when policy makers meet next week. And investors have penciled in the possibility of more outsize rate increases to come, along with expectations for an aggressive wind-down of the central bank’s balance sheet.
Read: Fed’s half-percentage-point interest rate hike next week seen baked in the cake
Investors will also weigh March data on personal income and spending.
Other data on tap include a final April reading of the University of Michigan’s consumer sentiment index, including a measure of consumer expectations for inflation over the next five years.
What do analysts say?
“A sustained moderation in wage growth would pull down everyone’s inflation forecasts,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, referring to the ECI reading, in a note.
“The rate of growth of unit labor costs — wage growth less productivity growth — is the biggest single driver of U.S. core inflation in the medium-term,” he wrote. “That’s why Chair Powell admitted candidly in December that the surge in the third quarter ECI scared policymakers.”
