U.S. Treasury Yields Rise as Inflation Data Offers Mixed Signals
On Friday, U.S. Treasury yields experienced a slight increase as investors reacted to the latest inflation data released by the Federal Reserve. The figures showed that the core inflation measure, known as the personal consumption expenditures (PCE) price index, came in lower than expected for September. This was the most recent available data due to the prolonged government shutdown in October and November.
The 10-year Treasury yield climbed just under 3 basis points, reaching 4.137%. Similarly, the 30-year bond yield increased by more than 2 basis points, settling at 4.791%. Meanwhile, the 2-year Treasury yield rose by over 3 basis points, hitting 3.564%.
It’s important to note that one basis point is equivalent to 0.01%, and yields and prices typically move in opposite directions. This means that as yields rise, bond prices fall, and vice versa.
Core PCE Data Shows Modest Inflation
The core PCE price index, which excludes volatile food and energy prices, recorded a 0.2% monthly increase. The annual rate remained at 2.8%, aligning with the consensus among economists surveyed by Dow Jones. However, the annual level was slightly lower by 0.1 percentage points compared to previous estimates.
In addition, the headline PCE, which includes all goods and services, rose by 0.3% in September. This brought the annual inflation rate to 2.8%, matching expectations set by the Commerce Department’s Bureau of Economic Analysis. Both the monthly and annual figures were in line with market forecasts.
Implications for the Federal Reserve
The release of the PCE data has provided further support for the Federal Reserve to proceed with its anticipated interest rate cut. Market participants widely expect the central bank to reduce the benchmark overnight lending rate by a quarter percentage point next week. This would bring the rate down to a range of 3.50% to 3.75%.
Ian Lyngen, an analyst from BMO Capital, noted in a report that while the data supports another 25 basis point cut, it does not signal any urgency for the Fed to accelerate the pace of cuts in 2026.
Consumer Sentiment and Labor Market Concerns
Separately, the preliminary reading of consumer sentiment for December from the University of Michigan came in at 53.3, slightly above Wall Street’s expectation of 52.0. This suggests a modest improvement in consumer confidence, although it remains below historical averages.
Despite this positive sign, concerns about the U.S. labor market persist. On Thursday, job placement firm Challenger, Gray & Christmas reported that layoffs, driven by factors such as artificial intelligence and tariffs, led to job cuts exceeding 1 million in 2025 for the first time since the pandemic. Additionally, the ADP report on Wednesday indicated that private payrolls declined by 32,000 workers in November.
These developments highlight the challenges facing the labor market, even as inflation data provides some relief for the Federal Reserve. Investors will be closely watching the central bank’s decisions in the coming weeks as it navigates the complex economic landscape.