Treasury yields were steady to slightly lower Friday morning after U.K. retail sales data underscored the notion that consumers on both sides of the Atlantic are continuing to hold up as inflation eases.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.880%
was 4.837%, unchanged from Thursday’s 3 p.m. Eastern time level. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.826%
slipped 3.5 basis points to 3.818% from 3.853% as of Thursday afternoon. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.886%
fell 3.5 basis points to 3.875% from 3.910% late Thursday.
What’s driving markets
Yields were little changed to slightly lower on Friday after data showed that U.K. retail sales rose more than expected in June as inflation eased — offering parallels to the U.S., where consumers remain solid at a time of waning price pressures.
There’s no U.S. economic data set for release on Friday, as traders prepare for next Wednesday’s Federal Reserve policy announcement. Fed funds futures traders are almost 100% certain that the central bank will deliver another quarter-point rate increase next week, which would raise the main interest-rate target to 5.25%-5.5%. They see a 28.3% chance of a similar-size move by November, according to the CME FedWatch Tool.
Data released on Thursday showed U.S. jobless benefit claims fell more than expected, to 228,000 for the week that ended July 15. For some, the report buttressed the view that the labor market remains too strong to bring inflation down meaningfully on a consistent, sustainable path to 2%.
What analysts are saying
“We expect the Fed to raise the federal funds rate by 25bp [basis points]” next Wednesday, said Daniel Vernazza, chief international economist at UniCredit Bank in London. “Most Fed officials have indicated they expect further tightening this year and it seems unlikely they would skip a hike two meetings in a row.”
“The post-meeting statement will likely leave the door open to further tightening, while in the press conference Fed Chair Powell is likely to emphasize that this depends on incoming data. We expect a July hike to be the last,” Vernazza wrote in a note.
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