US | Treasury yields slide as fears of an inflation resurgence softened

Summary

Policy rate expectations and Treasury yields eased from their late-April’s highs on softer employment and inflation data released recently.

Key points

• Key points:
• FOMC participants likely regained some confidence on the progress to their 2% inflation goal following the most recent inflation and employment data.
• The extent to which further data confirms that disinflation is still underway will partially determine the degree of market volatility in the coming months.
• The mid-to-long section of the yield curve is likely to flatten by year end, but it will take until mid-2025 for the whole yield curve to adopt a positively steepening shape.
• A further delay of rate cuts is likely to be present in next month’s SEP when FOMC participants will likely formally catch up with the already market-implied high-for-longer outlook.
• The median professional forecaster surveyed by the Philadelphia Fed revised up its projection for the 10-year Treasury yield, which is now expected to remain above 4% until mid-2025.

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