Jeenah Moon | Reuters
The 2-year Treasury note yield slid more than 6 basis points, to 4.827%, while the 10-year Treasury was nearly 4 basis points lower, at 5.217%, pulling back from its highest level since 2007. The 30-year Treasury bond was down almost 2 basis points at 5.578%, after rising to its highest level since 2002 on Tuesday.
One basis point equals 0.01%, and yields and prices move in opposite directions.
The personal consumption expenditures price index increased a seasonally adjusted 0.3% last month, putting the 12-month gain at 3.4%, the Commerce Department reported Wednesday. Economists surveyed by Dow Jones had been looking for increases of 0.3% and 3.7% respectively.
`Adjusting their sails’
“Net, net, the inflation fire is not burning as hot as markets expected in August, and bond yields are adjusting their sails as investors rethink exactly how many Fed rate hikes might be needed to keep inflation moving back down to target,” Christopher Rupkey, chief economist at FWDBONDS, wrote in response to the latest release.
Excluding food and energy, PCE posted a 0.2% increase in August that put the annual core level at 3%. The respective forecasts were for 0.3% and 3.3%.
Though the Fed officially follows the headline PCE number, officials generally consider the core reading a better gauge of longer-term inflation trends.
The good news on inflation Wednesday came after recent commentary from Federal Reserve officials led to a repricing of monetary policy expectations. At one point this month, traders priced in a more than 80% chance of a quarter-point rate hike in October. Those odds sat around 37% after Wednesday’s release, with traders pushing the next expected increase to December, according to the CME Group’s FedWatch tool.
“This is good news for investors worried about the recent surge in bond yields, and it bolsters the case for not hiking in October,” said David Russell, global head of market strategy at TradeStation. “However, it’s also relatively old data at this point that doesn’t reflect this month’s surge in diesel prices.”
Energy costs were the primary culprit for the price increase in August, though multiple other sectors also showed gains. Gasoline jumped 4.4% and transportation services accelerated by 1.4%. Energy goods and services rose 2.3%.
Also on Wednesday, the Commerce Department reported that gross domestic product increased at a 2.2% annualized rate in the second quarter, according to the final of three estimates, up sharply from the prior estimate of 1.5%.
— With additional reporting by CNBC’s Jeff Cox
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