Yield curve steepens and inflation breakevens move
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 43.6 basis points after climbing to 44.4, its highest since May 29.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.246% after closing at 2.263% on Wednesday. The breakeven rate closed at 2.171% on Tuesday, its lowest since November 2024.
The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.267%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
Longer-dated Treasury yields climb after economic data
NEW YORK, July 30 (Reuters) - Longer-dated U.S. Treasury yields climbed on Thursday as investors gauged a batch of economic data and continued to assess the most recent policy announcement from the Federal Reserve.
The Commerce Department said gross domestic product increased at a 1.5% annualized rate in the second quarter, below the 2.1% estimate of economists polled by Reuters.
The yield on the benchmark U.S. 10-year Treasury note US10YT=RR rose 3.7 basis points to 4.659% after climbing to 4.712%.
In a separate report, the Personal Consumption Expenditures Price Index (PCE) increased 3.7% in the 12 months through June, matching expectations, after advancing by an unrevised 4.1% in May.
Data from the Labor Department showed weekly initial jobless claims rose 9,000 to a seasonally adjusted 197,000, slightly below the 200,000 forecast, pointing to a labor market that remains on solid footing.
Fed statement and lack of forward guidance weigh on markets
The data came on the heels of a policy statement from the Fed that left rates unchanged but saw three policymakers dissent in favor of a rate hike, while comments from Chairman Kevin Warsh gave no guidance about the path of central bank policy aside from another pledge to bring down inflation.
"The data is consistent with what the market outlook is, which is the economy's doing fine - it's not rip-roaring too hot and it's not falling out of bed either, the labor market is doing fine. Everybody's going to pay attention to data and try to peel it apart for any indicators on inflation, but the overarching theme is the Fed," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas.
"The strategy behind pulling back on forward guidance is forcing the market to take responsibility and enlisting the market in helping him do his job."
30-year yield hits highest since 2007 and rate-hike odds shift
The yield on the 30-year bond US30YT=RR jumped 6.1 basis points to 5.204% after rising to 5.244%, its highest since July 13, 2007.
Markets are now only pricing in a 59.2% chance for a rate hike at the Fed's September meeting, according to CME FedWatch, down from 82.3% a week earlier.
The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 1.5 basis points to 4.221%.
Bank of America U.S. economist Aditya Bhave said in a note that markets responded to Warsh's press conference by "questioning the Fed's credibility," and that "the need to re-establish credibility increases the probability that the Fed will hike in September." As such, the firm remains comfortable with its forecast for 25 basis points worth of hikes at each of the central bank's remaining three meetings this year.
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