Key Developments
Yields dipped further yesterday after May's core PCE came in softer than expected—just +2.7% year-over-year (versus 2.6% projected), with month-over-month prints mild (headline +0.1%, core +0.2%) .
The 10‑year yield has dropped to around 4.3–4.5%, hovering near 6‑week lows after this release and dovish Fed commentary .
2‑year yields slid to ~3.84%, down 7 bp on Monday, reflecting growing expectations for a July rate cut (odds ~25%) .
Why It Matters
1. Fed positioning: Softer PCE inflation strengthens the case for a Fed rate cut—possible as early as July, increasingly expected by September .
2. Market sentiment: Treasury yields act as a bellwether—lower rates signal growing investor hope for economic stabilization.
3. Currency & equity impact: The U.S. dollar softened, while stocks edged higher as lower yields and inflation data reduce pressure on markets .
Outlook
Short term: Expect continued downward drift in yields, especially if upcoming U.S. economic data (e.g. consumer spending, jobs) remains soft.
Fed routing: Markets now see ~22–25% odds of a July cut and a ~70% chance by September .
10‑year projections: Deloitte forecasts yields staying around 4.5% through year-end—possibly dipping slightly in 2026 .
🔍 Summary Table
Factor Effect on Yields
Softer PCE data Sent bond yields lower
Fed dovish signals Push yields down, especially short‑term
Ongoing uncertainty Keeps a floor under yields
If you'd like a deeper dive into PCE dynamics, Fed projections, or future yield curves, I’m happy to dig into those next
