Key Highlights

  • The 10-year Treasury Yield fell 3 basis points to 4.654% after July CPI data matched Wall Street's consensus estimates
  • The 2-year Treasury yield, more sensitive to Fed policy expectations, fell 4 basis points to 4.178%, while the 30-year yield eased nearly 2 basis points to 5.217%
  • July CPI rose 0.1% monthly and 3.4% annually, both matching forecasts, while Core Inflation also came in as expected
  • Three Federal Reserve policymakers dissented in favor of a rate hike at the central bank's July meeting, though a weaker-than-expected jobs report has since reduced the odds of a September increase

Treasury Yields Fall as Inflation Data Matches Expectations

US Treasury yields fell Wednesday as investors digested July inflation data that came in line with expectations and pointed to continued cooling in price growth. The 10-year Treasury yield, a key benchmark for mortgage, auto loan, and Credit card pricing, fell 3 basis points to 4.654%. The 2-year Treasury yield, which more closely tracks expectations for Federal Reserve policy, declined 4 basis points to 4.178%, while the 30-year Treasury yield eased nearly 2 basis points to 5.217%. One basis point equals 0.01%, and bond yields move inversely to prices.

The Consumer Price Index rose 0.1% in July from June, with the annual rate easing to 3.4% from 3.5%. Both the monthly and annual readings, along with core inflation figures excluding food and energy, matched Wall Street's consensus forecasts.

CPI Report Seen as Key Input for September Fed Decision

The report is expected to weigh heavily on the Federal Reserve's policy decision at its September meeting. Three policymakers dissented at the central bank's July meeting in favor of raising rates from the current range of 3.50% to 3.75%, but a weaker-than-expected July jobs report released last Friday has led some investors to conclude that a September rate increase is now less likely. An analyst at a major Investment bank described the report as an as-expected release that leaves the door open for the Fed to pause in September, though not definitively, adding that the September decision will likely hinge on the combination of August Payroll and inflation data.

Energy Prices and Iran War Continue to Influence Inflation Trends

Underlying consumer price gauges had risen sharply earlier this year after the outbreak of the Iran war lifted energy costs and disrupted key Supply chains, prompting several Fed policymakers to deliver hawkish dissents at the central bank's last rate decision, with additional officials signaling similarly hawkish positions in subsequent public remarks. Even as broader inflation data has cooled, elevated energy prices have continued to filter into price indices amid renewed diplomatic tensions between Washington and Tehran over the reopening of the Strait of Hormuz. The Producer Price Index for July is due Thursday, following a softer-than-expected reading in June.