Inflation Data Drives Up Treasury Yields

On Friday, the 2-year Treasury yield experienced an increase as investors awaited crucial economic data that could impact the Federal Reserve's interest rate policy. Simultaneously, discussions regarding a potential debt ceiling deal were ongoing.

‍

The 2-year Treasury yield reached 4.57% after rising by 6 basis points, while the 10-year Treasury yield rose by 1 to 3.829%. It's important to note that yields and prices move in opposite directions, with each basis point representing a 0.01% change.

‍

Investors closely analyzed the release of the personal consumption expenditures price index for April, which serves as the Fed's preferred inflation measure. In April, inflation rose by 0.4%, surpassing economists' expectations of 0.3% based on Dow Jones poll. On an annual basis, the index increased by 4.7% compared to the previous year, also exceeding estimates.

‍

In recent weeks, Federal Reserve officials have provided mixed signals regarding the future of interest rates. Some officials expressed a preference for pausing the rate-hiking campaign, as they believe the full impact of elevated rates has yet to affect the economy fully. Others suggested that further rate hikes might be necessary to curb inflation, while some emphasized that decisions would depend on forthcoming economic data.

‍

Investors remained attentive to the ongoing negotiations surrounding the debt ceiling deal, as the approaching June 1 deadline could potentially lead to a default on U.S. debt obligations. While progress was made in discussions on Thursday, Republican negotiator Rep. Patrick McHenry noted that "sensitive issues" were still being addressed.

‍