FX.co ★ US 10-Year Yield Holds Decline

The 10-year US Treasury yield hovered around 4.65% on Friday, consolidating its recent decline as weaker-than-expected inflation data prompted investors to scale back expectations for a Federal Reserve rate hike in September. Data released Thursday showed that US producer prices were unchanged in July, reinforcing Wednesday’s subdued CPI report and indicating that inflationary pressures remain contained. This has eased the immediate pressure on the Fed to tighten monetary policy, with markets now assigning roughly a 35% probability to a 25-basis-point rate increase in September, down from about 55% a week earlier. The figures also suggest that the initial inflationary impact of the Middle East conflict and higher energy prices may be losing steam. Nonetheless, uncertainty over efforts to end the conflict and reopen the Strait of Hormuz remains a significant risk to the inflation outlook.