US Treasury Yields Fall as July Producer Prices Flatten

U.S. Treasury prices rose and yields declined on Thursday after the United States Department of Labor reported that producer prices remained flat in July. The producer price index for final demand was unchanged month-on-month, missing economist forecasts of a 0.2 percent increase, while the annual growth rate slowed to 4.7 percent from 5.5 percent in June. Core PPI rose 0.2 percent, also falling below the expected 0.3 percent, though annual core inflation remained slightly higher than anticipated at 4.2 percent.

This data, coupled with recent consumer price and payroll reports, shifted market expectations regarding the Federal Reserve System. According to the CME Group FedWatch Tool, the probability of a quarter-point interest rate increase in September dropped to 34.6 percent, down from 55 percent a week prior. The yield on the benchmark ten-year note declined 4.1 basis points to 4.641 percent.

Market movements were influenced by conflicting energy trends. Initial bond rallies were limited by high crude oil prices resulting from shipping disruptions in the Strait of Hormuz and stalled Middle East diplomacy. However, Treasury prices later received additional support as U.S. crude oil futures plunged 2.6 percent due to demand concerns.