Treasury Yields Mixed as Market Awaits Economic Data

U.S. Treasury yields experienced a narrow range of fluctuations before closing mixed on September 26. The market saw a slight increase in the 10-year Treasury yield, which closed at 4.2%, while the 2-year Treasury yield closed at 3.7%. The market's focus was on the upcoming economic data releases and the potential impact on monetary policy decisions. The narrow trading range reflected the market's cautious stance, as investors awaited further clarity on the economic outlook and the Federal Reserve's next steps.

Data showed that the U.S. core Personal Consumption Expenditures (PCE) price index met expectations, while personal income and spending exceeded forecasts. This led to an initial rise in Treasury futures. However, as the market awaited the final economic data release of the week—the University of Michigan's consumer sentiment and inflation expectations report—the market weakened. Relatively subdued one-year and five-to-ten-year inflation expectations helped narrow the decline, but the seven-year Treasury remained the weakest performer.

Shortly after 3 p.m. New York time, short-end yields fell by about 1 basis point, while medium- and long-term bond yields rose by about 1 to 2 basis points. The 2-year to 10-year and 2-year to 30-year yield spreads widened by 2.7 basis points and 2.9 basis points, respectively, from the previous close. The 5-year to 30-year yield spread remained below 100 basis points for the second consecutive day, approaching levels seen in late July, and settled at approximately 99.5 basis points. At the close, the 10-year Treasury yield rose by about 1.5 basis points to approximately 4.18%.

In remarks, a Federal Reserve official emphasized the need for the central bank to aim for the smallest possible balance sheet and return to proactive management. The official also reiterated earlier comments from the week, noting that due to past downward revisions in U.S. employment reports, the Federal Reserve may face the risk of falling behind the curve. The market's reaction to the economic data was muted, with yields showing limited movement despite the positive GDP growth figures. The market's focus remained on the upcoming economic data releases and the potential impact on monetary policy decisions. The narrow trading range reflected the market's cautious stance, as investors awaited further clarity on the economic outlook and the Federal Reserve's next steps.