Treasury yields fall as investors weigh interest rate outlook

U.S. Treasury yields fell on Thursday as investors digested recent inflation data that could impact the path ahead for Federal Reserve monetary policy. At 6:11 a.m. ET, the yield on the 10-year Treasury was down by over 3 basis points at 4.5%. The 2-year Treasury yield was last trading at 4.888% after falling by more than 2 basis points. Yields and prices have an inverted relationship and one basis point equals 0.01%. Two sets of data released this week suggested that inflation in the U.S. is easing. Wednesday’s producer price index, which tracks wholesale prices, reflected an unexpected 0.5% decline in October, compared to the 0.1% increase previously expected by economists surveyed by Dow Jones. This was the biggest drop since April 2020. This came after October’s consumer price index reading came in lower than expected on Tuesday, with the core CPI, which excludes food and energy, reaching a two-year low of 4% on an annual basis. Compared to the previous month the core CPI indicated a 0.2% rise. Forecasts had previously estimated increases of 4.1% and 0.3%, respectively. Many investors have understood the data as a signal that the Fed may be able to stop hiking rates and monetary policy is tight enough for the economy to ease and allow inflation to return to the central bank’s 2% target. The figures also promoted questions around when the Fed may begin cutting rates. Following the central bank’s latest policy meeting earlier this month, Fed Chairman Jerome Powell had suggested that further Fed rate hikes were still possible and that rate cuts had not been discussed so far. Policymakers will meet once more this year in December, and markets are widely expecting rates to be left unchanged then. On Thursday, investors will be following remarks from several Fed officials and weekly initial jobless claims figures.