Treasury Yields Drop Following Slight Decrease in CPI as Forecasted

Treasury yields fell on Thursday as investors digested a key inflation report. The report showed a small decline in price pressures, which led investors to believe that inflation may not be as big of a concern as previously thought. This helped to push yields lower as investors sought out safe haven assets.
The yield on the benchmark 10-year Treasury note was down by 7 basis points at 3.49%, while the yield on the 2-year note was trading 7 basis points lower at around 4.16%.
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Yields and prices move in opposite directions. One basis point equals 0.01%.
The consumer price index (CPI) fell by 0.1% in May, in line with expectations. This was the largest month-over-month decrease since April 2020, when much of the country was in lockdown due to the Covid pandemic.

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Excluding volatile food and energy prices, the so-called core CPI rose 0.3%, in line with expectations. It was up 5.7% from a year ago, also in line with expectations."The rate of year-over-year inflation moderated roughly in line with expectations but remains historically high," said Phillip Neuhart, director of market and economic research at First Citizens Bank Wealth Management. "Considering this report, the Federal Reserve will likely continue to tighten monetary policy, potentially at a slower pace."
The last CPI reading before the Fed's next meeting will be released on Jan. 31. This will be the central bank's last opportunity to assess inflation before making its next interest rate decision. Fed officials have hinted that future policy could be affected by new inflation figures.
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Investors are hoping to gain new clues from Thursday’s CPI data about whether the Fed will hike rates by 25 or 50 basis points. Uncertainty about the Fed’s next move has been persistent, and investors are hoping the CPI data will provide some clarity.
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After increasing rates by 75 basis points four times in a row, the central bank slowed the pace of rate hikes to 50 basis points at its last meeting. Many people are hoping that the Fed will continue to slow, or completely stop, rate hikes as concerns about the pace dragging the U.S. economy into a recession have spread.
On Thursday, investors will get insights into the broader state of the U.S. economy with the release of initial jobless claims data and the monthly budget statement for December.