US Treasury yields retreated in the last week of October, as signs of easing inflation offset strong Q3 economic growth. The core price consumer expenditure index, a measure of inflation closely watched by the Federal Reserve, slowed to 3.7% in the 12 months through September, as expected, from a 3.9% pace the prior month. The US central bank is widely expected to keep rates on hold next week. Yet Fed officials have left the possibility of another rate hike on the table this year, indicating a continuation of elevated interest rates for an extended period.
The yield on the 10-year Treasury yield was down 9 basis points from 4.93% to 4.84% while the 2-year yield lost 7 basis points to 5.08% from 5.01%.
In Europe, the 10-year German bund yield fell from 2.89% to 2.83%. Similarly, the yield on the French 10-year OAT eased 6 basis points to 3.46%.
The pullback in Treasury yields allowed investment grade corporate bonds to recover some of the losses suffered last week. The IBOXX € Liquid Corporates gained 0.56% for the week. In the U.S., the IBOXX $ Domestic Corporates index was up 0.47%. High yield bonds followed suit, with a gain of 0.42% in Europe (IBOXX € Liquid High Yield Index) and 0.60% in the U.S. (Markit iBoxx USD Liquid High Yield Capped Index). Lastly, emerging debt in local currencies gained 0.37%.