Treasuries Gain as Key Fed Inflation Figures Trail Estimates
(Bloomberg) — U.S. Treasuries were out of session late Friday after closely watched inflation data came in below expectations, prompting traders to raise the prospect of a Federal Reserve rate cut next year.
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The policy-sensitive two-year Treasury yield was marginally lower at 4.31% late Friday afternoon, after an early decline.The benchmark 10-year yield fell 4 basis points to 4.51% in late trade The moves have led to a sharp uptrend this week that has flattened part of the yield curve since 2022. Treasuries held on to their early gains after a University of Michigan survey showed US consumer sentiment rose for a fifth straight month in December.
Data earlier Friday showed that the core personal consumer spending price index, the Fed’s preferred measure of core inflation, rose 0.1% in November from October and 2.8% from a year earlier, both slightly below consensus forecasts.
Swaps traders are pricing in about 39 basis points of total Fed cuts next year, implying two full quarterly cuts.But many on Wall Street expect the central bank to cut more than that.
“We expect more cuts from the Fed next year,” Subadra Rajapa, head of U.S. interest rate strategy at Societe Generale, said on Bloomberg Television cuts are in. “The way the economy is going, you should see moderation in growth, moderation in employment, moderation in inflation,” he said.
Pressure on long-term debt pushed the 10-year Treasury yield above the two-year rate to the highest since 2022 this week.
The cut came after the Fed on Wednesday signaled a slower pace of rate cuts next year amid signs of sticky inflation. Fed officials’ quarterly forecast on average called for a two-quarter-point cut in 2025, up from the four steps they forecast in September. compared to
“The Fed is trying to pass the next phase of the easing cycle,” said Julian Potenza, a portfolio manager at Fidelity Investments. the case is probably a continuation of a cycle of modest easing.”
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