(April 9): US Treasuries held steady after the Federal Reserve’s preferred inflation gauge showed elevated price pressures even before the US attack on Iran sent energy costs sharply higher.
Yields across maturities were little changed on Thursday following the data, with the two-year tenor — most attuned to expectations for Fed policy — near 3.78%. Interest-rate swaps continued to price in a roughly 25% chance of a quarter-point Fed rate cut by the end of 2026.
The US$31 trillion (RM123.7 trillion) Treasuries market has benefited only modestly this week from a ceasefire agreement that sent oil prices tumbling on the prospect of resumed Middle East supply via the Strait of Hormuz. Oil benchmarks partially rebounded on Thursday as the strait remained effectively closed and US and Iranian leaders alleged ceasefire violations. Brent crude jumped back above US$98 a barrel from under US$95.
Thursday’s slew of US economic indicators drew scant reaction from Treasuries and the dollar ahead of an auction of 30-year bonds at 1pm New York time. The third and last sale of the week follows improved demand for three- and 10-year notes relative to last month’s auctions.
The inflation gauge derived from February personal income and spending data — the price index for personal consumption expenditures — rose 0.4% overall and excluding food and energy prices, in line with median estimates. Price increases limited the inflation-adjusted change in consumer spending to 0.1%.
The year-on-year rates rose to 2.8% and 3% respectively. Fed policymakers aim for an overall rate of 2% over the long run.
The consumer price index, a separate and timelier inflation gauge, is set to be released on Friday for March, and to show steep increases tied to the move in oil prices since the war began on Feb 28.
Also reported on Thursday, new claims for jobless benefits increased more than estimated last week, while recurring applications fell to the lowest level in almost two years, evidence of stabilisation in the labour market.
Oil prices have been a principal driver of bond markets globally over the past six weeks as investors weigh their potential to lift inflation but also to restrain economic growth. The two outcomes have opposite implications for Fed policy.
Before the war began traders were fully pricing in two quarter-point Fed cuts in 2026. As oil prices mounted, those wagers were scrapped and a rate increase was briefly priced in. Since the truce announcement this week, expectations for a cut by the end of the year have risen slightly.