US Treasury yields fall 11 bps this week as PCE inflation cools, but elevated headline inflation keeps Fed policy in focus ahead of June meeting.
US Treasury 10-year yields declined 11 bps to 4.447% in the first four trading days this week, retreating from a May 19 peak of 4.685%. The move follows a moderation in PCE inflation, with April’s monthly headline reading easing to 0.4% from 0.7% in March, while core PCE slowed to 0.2% from 0.3%.
Year-over-year headline inflation rose to 3.8% from 3.5%, reinforcing concerns among some Fed officials that the current 3.50-3.75% real Fed Funds Rate remains below neutral. Despite expectations of disinflation resuming, newly appointed Fed Chair Kevin Warsh will navigate a divided FOMC at the June 16-17 meeting, with prior votes split on rate cuts and forward guidance.
Markets view the meeting as a test of the Fed’s potential shift toward a lower rate regime, though divisions persist over the pace and timing of policy adjustments.