Ahead of Crucial Inflation Data, Ten-year Treasury Yields Are Rangebound

U.S. bond yields saw a slight increase on Thursday morning, supported by data indicating stronger-than-expected economic growth in the final quarter of last year and ongoing stability in the labor market.

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Here's a breakdown of the movements in bond yields:

• The yield on the 2-year Treasury climbed 4.6 basis points to 4.614% from Wednesday's 4.568%.
• The yield on the 10-year Treasury rose by 2.2 basis points to 4.217% compared to Wednesday's 4.195%.
• The yield on the 30-year Treasury remained relatively unchanged at 4.363% versus Wednesday's 4.358%.
• It's worth noting that the bond market will close at 2 p.m. Eastern time on Thursday ahead of the Good Friday holiday.

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What's contributing to these market movements:In the latest U.S. economic data, the final reading of fourth-quarter growth was revised upward to 3.4% from the previous estimate of 3.2%, indicating unexpected strength in the economy. Additionally, initial jobless claims declined slightly to 210,000 last week, signaling ongoing robustness in the labor market.

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Market participants are also considering comments made by Fed Governor Christopher Waller on Wednesday, where he emphasized that recent high inflation figures and strong job gains reinforce the view that there's no immediate need to lower interest rates.

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As a result, fed-funds futures traders have slightly reduced the probability of a quarter-point rate cut by June, down to 60.3% from 63.7% the previous day, according to the CME FedWatch Tool. However, they still largely anticipate three quarter-point cuts by December.

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Looking ahead, the February personal-consumption expenditures price index, a key inflation metric for the Federal Reserve, will be released on Friday morning when markets are closed for the holiday. Fed Chairman Jerome Powell is scheduled to provide comments later in the morning.

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Insights from market strategists:Macro strategist Will Compernolle of FHN Financial in New York noted that investors are prepared to close the chapter on a month marked by ambiguous data. While expectations for multiple rate cuts this year remain intact, recent data has unsettled confidence in a soft landing scenario as observed after the January FOMC decision. Market reactions to the February PCE data, released during the holiday, will be delayed until Monday.

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