10-, 30-year Treasury yields finish with biggest weekly rise in three weeks

What happened

• The yield on the 2-year Treasury
  TMUBMUSD02Y,
  4.878%
  fell 4.4 basis points to 4.895% from 4.939% on Thursday. However, the yield ended higher for the second straight week, advancing by 4.9 basis points.

• The yield on the 10-year Treasury
  TMUBMUSD10Y,
  3.953%
  dropped 4.3 basis points to 3.968% from 4.011% Thursday afternoon. It rose 13.1 basis points this week and is also up for the second straight week.

• The yield on the 30-year Treasury
  TMUBMUSD30Y,
  4.012%
  slipped 3 basis points to 4.028% from 4.058% late Thursday. For the week, it rose 12.2 basis points.

• The weekly advances in the 10- and 30-year rates are the largest since the period that ended on July 7, based on 3 p.m. Eastern time data from Dow Jones Market Data.

What drove markets

In data released on Friday, the PCE price index, which is the Federal Reserve’s preferred measure of inflation, rose by a mild 0.2% in June — matching the expectations of economists polled by The Wall Street Journal.

The increase in prices over the past year slowed to 3% from 3.8% and touched the lowest level since October 2021, the government said Friday. In addition, the narrower rate of core inflation, which kicks out food and energy, slowed to 4.1% from 4.6% over the past year; that’s still far above the Fed’s 2% target.

The employment cost index, a crucial measure of wages, moderated in the second quarter, rising by 1% versus 1.2% in the first quarter. Meanwhile, a University of Michigan survey showed that consumer sentiment reached a 22-month high in July, helped by the slowdown in inflation.

Thursday had seen a big upward move in yields. That came as the result of strong U.S. economic data, which included better-than-expected second-quarter GDP; a report that the Bank of Japan would be modifying its yield-control program; and a poorly received auction in 7-year notes. The 10-year rate jumped 16.1 basis points on Thursday, the most since Sept. 26, 2022.

See: Ueda says flexible yield curve control doesn’t change Bank of Japan’s easy stance and What the Bank of Japan’s policy tweak means for markets

What analysts are saying

“Friday’s PCE suggests that inflation is continuing to decelerate, but it remains firmly above the Fed’s 2% target, which suggests that the Fed still has more work to do and may continue raising interest rates. The potential for additional tightening, after over a year of steep rate hikes, risks slowing the economy,” said Richard Saperstein, chief investment officer of Treasury Partners in New York, which has $9 billion in assets under management.