Why are US treasury yields falling today? Federal Reserve interest rate hike in October expectations drop

As expectations for hike in Federal Reserve interest rate have dropped, the yields on 2-year and 10-year US treasuries have come down on Wednesday. According to the latest data from LSEG, there is around 65% chance that the Fed will keep rates steady next month compared with a 55% chance before the PCE release.

Personal Consumption Expenditures Price Index

The Commerce Department's Bureau of Economic Analysis said that the Personal Consumption Expenditures Price Index has increased 0.3% last month after a downwardly revised 0.1% gain in the month of July. In August, Core PCE inflation rose 3.0% year-on-year after a downwardly revised 3.0% advance in the month of July. The inflation was first estimated to have increased 3.3% in the whole year through July.


Luis Alvarado, co-head, global fixed income strategy, Wells Fargo Investment Institute, said, "Core PCE came in lower than the consensus expectation but the market already knew that the changes in how the number was calculated were going to impact the number. The actual inflation experience and the pain in affordability that consumers and businesses are feeling is still alive and well. This one data point does not change the trend that we have been experiencing. The Fed is still behind the curve and needs to act further to rein in inflation."

Bond yields

After briefly rising to 5.2574%, the yield on benchmark US 10-year notes dropped 1.45 basis points to 5.241%. The 30-year bond yield increased 1.06 basis points to 5.6046%. It was on track to advance for its seventh day in a row.

After touching a low of 4.8267% after the data release, the 2-year note yield fell 5.19 basis points to 4.837%. It generally moves as per interest rate expectations for the Federal Reserve.