FX.co ★ US 10Y Yield Pressured by Soft PPI

The yield on the US 10-year Treasury note hovered around 4.56% on Thursday after declining for two consecutive sessions, as easing inflation pressures tempered expectations of a near-term Federal Reserve interest rate hike. Data released on Wednesday showed that US producer prices unexpectedly fell in June for the first time in nearly a year, largely due to lower energy costs, following Tuesday’s softer-than-expected consumer inflation report.

In response, markets scaled back the likelihood of a Fed rate increase in September, with the implied probability slipping to about 44% from 50% the previous day. At the same time, investors continued to track escalating tensions in the Middle East after the US carried out additional strikes against Iranian targets. The renewed conflict drove oil prices sharply higher this week, reigniting concerns about inflation and the future path of interest rates. Still, President Donald Trump said on Wednesday that Tehran had indicated a willingness to resume negotiations.