The 10-year Treasury yield is up by 4.3 bps to 4.182% on Monday, its highest level since September 25. Last week, the yield recorded its largest weekly gain in six months.
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The price movement comes ahead of the December 9-10 Federal Open Market Committee (FOMC) meeting, where the central bank is expected to cut rates by 25 bps. This suggests the yield is pricing in factors other than the federal funds rate, such as a strong economy or the risk of persistent inflation over the long run.
‘Hawkish Cut’ Expected as Core PCE Remains Above Target
Investors expect a “hawkish cut” this week, meaning the Fed will cut rates but signal a more cautious approach in future cuts in order to avoid fueling inflation.
Last week, September’s core Personal Consumption Expenditures (PCE) index showed inflation of 2.8%, below the consensus estimate of 2.9% but still well above the Fed’s target of 2.0%. Core PCE is the Fed’s preferred gauge of inflation because it excludes volatile food and energy prices and reflects more stable, long-term inflation trends that guide monetary policy.
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