Treasuries saw gains on Thursday after the Federal Reserve's preferred inflation gauge showed a smaller-than-expected increase. This development has lowered market expectations for an interest-rate hike in the coming months, offering a reprieve to the bond market.
As a result of this benign inflation data, yields on two-year notes, which are highly sensitive to Federal Reserve policy changes, decreased by approximately four basis points to 4.10%. Benchmark 10-year note yields also fell by about one basis point to 4.38%. The 30-year Treasury yield remained largely unchanged near 4.85%, though it had touched 4.82% earlier, marking its lowest level since March.
The May 2026 inflation report, released on June 10, showed that core CPI rose by just 0.2% month-over-month, falling below the 0.3% forecast. Headline CPI for May was 0.5% month-over-month and 4.2% year-over-year, aligning with economists' predictions. The core reading, excluding volatile food and energy components, printed at 2.9% on a year-over-year basis. This cooler-than-expected core inflation contributed significantly to the reduced expectations for further Fed tightening.
