FX.co ★ US 10-Year Yield Falls to 5-Month Low

As of Wednesday, the yield on the 10-year US Treasury note declined to a five-month low, settling at 4.04% due to subdued inflation data and robust demand observed in the latest auction. In an unexpected turn, both headline and core producer prices in the United States fell during August, fuelling optimism for disinflationary trends benefiting consumers. Concerns over persistently high inflation have led the Federal Open Market Committee (FOMC) to maintain interest rates at steady levels throughout the year, despite mounting evidence of a weakening labor market. The Federal Reserve is anticipated to commence its rate-cutting cycle next week with a 25 basis points reduction. However, the recent softer-than-expected Producer Price Index (PPI) figures and gloomy signals from the August employment report have prompted a minority in the market to anticipate a more significant cut of 50 basis points. Nonetheless, the yield curve continued to steepen, influenced by elevated inflation expectations and political pressure from the White House, resulting in the 30-year bonds significantly underperforming compared to other maturities this year. Meanwhile, the latest auction of 10-year notes recorded an impressive demand, coming through 3 basis points.