Key insights
- Treasury yields are flat ahead of the March CPI release, expected to show a significant jump in headline inflation due to rising energy costs and tariffs. Geopolitical tensions in the Middle East and persistent inflation above the Fed's 2% target complicate the Fed's rate-setting approach. Higher-than-expected CPI could lead to a more hawkish Fed stance, negatively impacting US equities.
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Yields on U.S. Treasury were largely flat heading into the final trading day of the week, with a key CPI print — due later on Friday — expected to show a jump in headline inflation.
The yield on the 10-year U.S. Treasury note — the benchmark for government borrowing — was little changed at 4.29723% at around 6:45 a.m. ET.
The 2-year Treasury note yield, which is more sensitive to short-term Federal Reserve interest rate decisions, added less than 1 basis point to reach 3.787%. The longer-dated 30-year Treasury note yield held steady at 4.901%.
One basis point equals 0.01%, or 1/100th of 1%, and yields and prices move inversely to one another.
The geopolitical shock created by the U.S.-Iran war has upended investor expectations for the Fed's interest rate trajectory.
Inflation remained above the Fed's 2% target even before the war started and has been there for five years. The Middle East conflict has complicated the Fed's rate-setting approach, as the central bank weighs the lasting price impact of the energy shock.
The U.S. consumer price index, which was up 0.3% in February, is expected to show an increase of 0.9% when the latest monthly print is released later, with the oil rise partly pushing the increase.
Similarly, headline annual inflation, which stood at 2.4% year-over-year in February, is forecast to jump to 3.3% for March, according to consensus estimates. The increase, driven by sharply higher energy costs as well as the pass-through of tariffs to consumers, would mark the highest level since April 2024.
On Thursday, the personal consumption expenditures price index — the Fed's preferred inflation gauge — saw a monthly rise of 0.4% in February, in line with expectations and increasing 2.8% year-on-year.
As the Middle East ceasefire agreement remains strained, oil again approached $100 a barrel in early dealmaking on Friday. West Texas Intermediate was last seen up 1.62% at $99.46 per barrel, with Brent crude prices advancing 1.85% to $97.65.