Rates Little Changed Ahead of Short Friday Session

Swap rates and Treasury yields end the day little changed in another volatile session. Rates seesawed in 10+ bp range as markets digested a host of economic data that showed a modest deceleration in durable goods orders and a bigger than expected decline in pending home sales. The front end of the curve has continued to be weighed down by speculation around a potential Fed pause in September, a host of strategists speculating that the central bank will not continue to hike rates beyond 2%. While growth concerns have dominated headlines, a hot inflation number tomorrow could change that.

Core PCE is estimated to have declined to 4.9% from 5.2% Y/Y in April. Core PCE is the Fed’s preferred gauge of inflation and has been over the bank’s 2% target for the past year. This high-impact report will likely influence the FOMC’s rate decision next month, as many officials are in favor of a larger hike if inflation has not yet hit its peak. Fed Chair Powell commented yesterday, “There could be some pain involved in restoring price stability.”

Day ahead. Tomorrow’s session will be a short one with markets closing at 2pm ET ahead of the Memorial Day Weekend. Outside of personal income and spending data we’ll also get the latest look at the University of Michigan’s sentiment survey.