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Bond yields rose on Friday ahead of the release of key inflation data.

What’s happening
  • The yield on the 2-year Treasury

    rose 5 basis points to 4.34%. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury

    also rose 5 basis points, to 3.97%.

  • The yield on the 30-year Treasury

    added 1 basis point to 4.01%.

What’s driving markets

Bond yields have eased this week — with the 2-year yield down 18 basis points over the last three days — as the idea the Federal Reserve will slow the pace of rate hikes after one last three-quarters point hike in November takes hold.

“Markets have started to trade a Fed pivot again, but this pivot is defined as hiking in smaller increments, not as a ‘proper’ pivot from hikes to cuts,” said strategists at Citigroup. “U.S. rates will peak before equities bottom, but only when the Fed is almost done, not when it just slows down.”

September’s PCE price index — the Fed’s preferred measure of inflation — is set for release on Friday. The numbers were baked into Thursday’s release of third-quarter GDP, as core PCE for the quarter came in at 4.5% annualized. Another key datapoint, the employment cost index, also is set for release.

“The ECI particularly worries me as an upside surprise could be the jolt markets need to remind them the Fed has more tightening to do and can come with another hawkish message at this meeting. Remember, the strength in the same end-of-October ECI report in 2021 was the reason that [Fed Chair Jerome] Powell had used to justify their hawkish pivot at the December meeting,” said strategists at NatWest.

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