Treasury yields rise ahead of key inflation data; markets resume trading after public holiday

• The 10-year Treasury yield rose over 3 basis points to 4.483%, while the 2-year yield increased over 3 basis points to 4.213%
• Core PCE inflation data due Thursday is expected to show a 0.5% increase from April, according to FactSet economist polls
• The Fed kept rates unchanged at 3.5%-3.75% last week but removed language indicating a bias toward future rate cuts, signaling a potential shift toward rate hikes

Summary

Market Movement:

U.S. Treasury yields rose across the curve on Tuesday as markets reopened after Friday's public holiday. The benchmark 10-year note yield increased 3+ basis points to 4.483%, while the 2-year yield climbed over 3 basis points to 4.213%. The 30-year yield advanced more than 1 basis point to 4.919%.

Key Event:

Investors are focused on Thursday's release of May's Personal Consumption Expenditures (PCE) price index—the Federal Reserve's preferred inflation gauge. Economists polled by FactSet expect the core PCE (excluding food and energy) to show modest increases from April levels.

Federal Reserve Policy:

Last Wednesday's Federal Open Market Committee (FOMC) meeting under new Fed Chair Kevin Warsh delivered a more hawkish tone than anticipated. The committee:

• Kept the federal funds rate unchanged at 3.5%-3.75%
• Removed language indicating a bias toward future rate cuts
• Signaled openness to potential rate hikes

Market Implications:

The hawkish pivot has shifted market expectations, with rate hike anticipation now pulled forward to as early as October. Investors are closely monitoring inflation data that could trigger the Fed to begin raising rates. The yield movements occurred despite falling oil prices, indicating strong sensitivity to monetary policy expectations.

Context:

This marks Kevin Warsh's first meeting as Federal Reserve chairman, with the policy shift representing a significant change in the central bank's stance on future interest rate policy.