Yields Dip as July CPI Matches Forecasts, PPI Awaited

U.S. Treasury yields declined Thursday as investors assessed a July consumer price index reading that aligned with expectations and prepared for the producer price index release later in the session. The 10-year note yield fell 2 basis points to 4.672 percent, the 2-year note dropped more than 2 basis points to 4.178 percent, and the 30-year bond eased less than 1 basis point to 5.238 percent. Yields move inversely to prices.

The July CPI rose 0.1 percent month over month, matching economist forecasts compiled by Dow Jones. That print followed weaker employment data from the prior week and prompted traders to reduce bets on a Federal Reserve rate increase at the September meeting. The July PPI, scheduled for release at 8:30 a.m. ET, is expected to show a 0.2 percent monthly gain, according to the same Dow Jones survey.

Goldman Sachs analysts wrote that most FOMC participants would likely view the anticipated July figures as acceptable and would prefer to review August CPI and PPI data before deciding on September action. Deutsche Bank strategist Jim Reid noted that two consecutive core inflation reports in line with consensus, combined with softer jobs data, eased immediate pressure on the Fed. José Torres of Interactive Brokers stated that the odds still favor a rate increase in October or December after officials assess both sides of the central bank's mandate.

Stock futures rose modestly, with Dow Jones Industrial Average futures adding 168 points, or 0.3 percent, while S&P 500 futures gained 0.2 percent. Brent crude futures fell nearly 2 percent to $87.36 per barrel amid reports of declining oil demand during the ongoing U.S.-Iran conflict. The PPI report arrives one day after the CPI release and forms part of the data sequence markets are using to gauge the timing of any policy shift.