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Bond Report: Treasury yields hold steady in shortened session after April U.S. inflation reading eases

U.S. Treasury yields were little changed in an abbreviated trading day on Friday as traders headed into the Memorial Day weekend and after the latest U.S. inflation report failed to settle the debate over whether price pressures are near their peak.

What Treasury yields are doing

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.745%

declined less than 1 basis point to 2.748% from 2.756% at 3 p.m. Eastern on Thursday. Yields and debt prices move opposite each other.

The 2-year Treasury note yield
TMUBMUSD02Y,
2.467%

rose 1.2 basis points to 2.498% from 2.486% Thursday afternoon.

The 30-year Treasury bond yield
TMUBMUSD30Y,
2.970%

declined 1.4 basis points to 2.977% from 2.991% late Thursday.

What’s driving the market

Data released on Friday showed that the annual headline rate on the personal-consumption expenditures price index slowed to 6.3% in April from a 40-year high of 6.6% in March in a sign that price pressures may have peaked. On a monthly basis, the rise in the Fed’s preferred inflation gauge was just 0.2% in April, while the narrower reading that kicks out food and energy costs rose 0.3% last month.

The reading gave hope to some of those people in the camp that believe inflation has already, or is about to peak, though isn’t enough on its own to settle the debate.

The two-year Treasury yield fell this week as traders scaled back their expectations for further interest rate increases this year. Meanwhile, some policy makers have indicated the central bank could pause after delivering a few more rate increases.

The Fed kicked off its tightening cycle with a 25 basis point, or quarter of a percentage point, rate increase in March, followed by a half-point rise earlier this month. Two more half-point increases are on the table at coming meetings, according to Fed Chair Jerome Powell.

Trading ended early Friday, with the Securities Industry and Financial Markets Association, an industry trade group, recommending a 2 p.m. for U.S. fixed-income activity. U.S. markets will be closed Monday for the Memorial Day holiday.

What analysts say

“Yes, inflation is finally slowing, but it’s a little early for high-fives,” said Bill Adams, chief economist for Comerica Bank. “Gas and food prices continued to rise in May, and the risk of additional supply-side shocks remains high as the Russia-Ukraine war grinds on and lockdowns drag on in China. Rising prices will probably continue to be a big problem for the U.S. economy for at least the rest of the year.”

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