Treasury yields fall to start August on signs that inflation may be cooling

U.S. Treasury yields fell on Monday after a few key reports signaled that high inflation may be cooling off.

At around 4:20 p.m. ET, the yield on the benchmark 10-year Treasury note was down 56 basis points to 2.586%. The 30-year yield slipped 59 basis points to 2.921%. Yields are inverse to price and a basis point is one-hundredth of a percent.

The 2-year yield fell slightly to 2.892, meaning the closely watched 2-year/10-year yield curve remains inverted, a situation often interpreted as a sign of impending recession.

The dip in bonds came after the ISM manufacturing report for July showed an a sharper-than-expected decline in prices paid. The measure can be seen as a sign that inflation could decline in the coming months.

“As demand slows and supply bottlenecks improve, we should expect a corresponding slowdown in inflation during the back half of this year. The Fed will likely respond with smaller rate increases in the coming meetings,” LPL Financial chief economist Jeffrey Roach said in a note.

Wall Street is coming off its strongest month since 2020 as longer-term interest rates moderated slightly and investors found a relief rally after months of deepening pessimism, with corporate earnings offering some reprieve.

The big data point this week will be Friday’s nonfarm payrolls report from the Bureau of Labor Statistics, which will give more insight into the strong labor market.

So far this year, the solid growth of jobs has prompted economists to say the United States is currently not in a recession, even with two consecutive quarters of GDP contraction.