US yields down on day after weak inflation, income figures

Oct 26 – US Treasury yields fell on Thursday following the release of weaker-than-expected US inflation and disposable income data, supporting market sentiment that interest rates are at, or near, their peak.

The benchmark yield on 10-year Treasury notes was down 10.6 basis points at 4.847%. It breached 5% on Monday after doing so last week for the first time in 16 years.

The yield on the 30-year Treasury bond was down 10.4 basis points at 4.988%.

The closely watched gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -19.7 bps.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 7.9 basis points at 5.042%.

Yields have rallied in October on expectations the US Federal Reserve will maintain a higher-for-longer rates course in the face of persistent inflation.

But yields moved lower on Thursday after the release of several economic datapoints, including headline GDP of 4.9% which came in line with expectations.

A measure of inflation, core personal consumption expenditures (PCE), came in weaker than expected at 2.4%, its lowest since the fourth quarter of 2020.

“So that at the margin maybe underscored the expectation that central banks are done hiking, giving the markets a bit more optimism,” said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco.

The data showed consumer spending remained strong in the third quarter, which analysts have pointed to as a major factor in the economy’s resilience.

But disposable personal income increased only 1.9% to USD 95.8 billion, in the third quarter, a significant decline from the 6.1% jump to USD 296.5 billion seen in the second quarter.

Meanwhile, new unemployment claims rose 10,000 last week from the prior week to 210,000.

“Today’s numbers suggest there’s still a lot of momentum in the economy, but that there are several headwinds on the horizon,” Rupert said.

Yields fell further on Thursday after the US Treasury Department auctioned USD 38 billion in seven-year notes at a high yield of 4.908%.

The auction followed weak sales of five-year notes on Wednesday, which helped boost yields.

The seven-year sale was “on the market,” extending the rally in government bonds seen throughout the day, according to Lou Brien, economic strategist at DRW Trading Group.

The yield on existing seven-year notes has fallen 2.5 bps to 4.893% after the auction.

Several sets of data are slated for Friday which will further paint the US economic picture and inform the Fed’s rate path. These include September personal income and spending figures and October consumer sentiment data.

October 26 Thursday 3:03 PM New York / 1903 GMT

(Reporting by Matt Tracy; editing by Christina Fincher, Sharon Singleton, and Giles Elgood)