The U.S. 10-year Treasury yield settled at 4.39% on Wednesday — up four basis points on the session — and reached 4.41% in overnight Asian Thursday dealings, the highest level since February. The 30-year long bond closed at 4.62%, while the 2-year ended at 4.06% as the FOMC dot-plot hawkish skew flattened the front end of the curve. The 2s10s curve steepened to +33 basis points from +29 bps on Tuesday.
Bond investors are positioning ahead of Friday's 8:30 a.m. ET release of the March personal consumption expenditures (PCE) price index — the Federal Reserve's preferred inflation gauge. Bloomberg consensus calls for a headline 2.5% year-on-year reading and core PCE at 2.7%, both meaningfully above the Fed's 2% target. The annualized three-month run-rate of core PCE has been hovering at 2.9% — a level that prompted Chair Powell to flag "service-sector inflation remains stickier than we would prefer" at Wednesday's post-meeting press conference.
Term Premium Returns
The Adrian-Crump-Moench term premium estimate published by the New York Fed has now reset above 100 basis points for the first time since 2014, reflecting investor demand for compensation against fiscal and inflation risk. The U.S. Treasury's next quarterly refunding announcement on May 1 is expected to maintain "stable nominal coupon sizes," but Wall Street primary dealer surveys point to potentially larger TIPS issuance — a tactical hedge against persistent inflation surprises.
TIPS breakevens are reflecting the inflation anxiety: the 5-year-5-year forward inflation breakeven climbed to 2.61% Wednesday, the highest since November 2022 and well above the Fed's 2% mandate. The 10-year inflation breakeven settled at 2.44%, up 11 basis points from the start of April — almost entirely driven by the Iran-war oil bid in the front of the curve transmitted into longer-dated breakevens.
FX and Equity Spillovers
The U.S. dollar index (DXY) traded at 105.40, up from 104.80 a week ago. The widening U.S.-Japan rate differential reignited yen weakness with USDJPY at 159.55. The U.S. equity tape was decoupled Wednesday — the S&P 500 closed at 7,173.91, down 0.4% — but mega-cap tech earnings produced after-hours futures gains. The bond-equity correlation, which had turned positive earlier in 2026, is again statistically elevated as both asset classes price the same disinflation backdrop.