The benchmark 10-year U.S. Treasury yield fell to 3.78% on Friday, its lowest level since early November, after the March personal consumption expenditures price index — the Federal Reserve's preferred inflation gauge — came in at a year-over-year rate of 2.4%, two-tenths cooler than economist forecasts. Core PCE, which excludes food and energy, registered 2.6%, also below consensus.
The cooler reading pushed Fed funds futures contracts to imply a 92% probability of a 25-basis-point rate cut at the June 17-18 FOMC meeting, up from 71% before the data release. Markets are now fully pricing in two additional cuts before year-end, taking the federal funds target range to 3.50%-3.75% by December from the current 4.25%-4.50%.
Curve Steepens to Two-Year High
The 2-year note yield, which more closely tracks Fed expectations, fell 14 basis points on the week to 3.62%, while the 30-year long bond declined to 4.18%. The 2s/10s curve steepened to 16 basis points positive, the most upwardly sloping configuration since June 2024 and a signal that bond markets see the Fed cutting cycle as credible while still pricing inflation risks at the long end.
Demand at this week's Treasury auctions was the strongest in over two years. The $48 billion 2-year auction priced through the when-issued level by 1.4 basis points with a 2.71x bid-to-cover, and the $69 billion 5-year drew the highest indirect bid (proxy for foreign central banks) since 2022, indicating that overseas reserve managers are aggressively rebuilding U.S. dollar exposure following the Iran-war episode.
Mortgage Rates Slide
The 30-year fixed mortgage rate slid to 5.94% according to Freddie Mac's weekly survey, down from 6.18% the prior week and the lowest reading since August 2024. The Mortgage Bankers Association reported purchase applications jumped 11.2% week-over-week and refinance applications surged 38%, the strongest weekly figure since the post-pandemic refinancing boom.
JPMorgan rates strategist Jay Barry now forecasts the 10-year yield ending 2026 at 3.40%, citing the combination of disinflation, anticipated Fed easing, and continued strong foreign demand. Bears continue to point to the projected $1.95 trillion fiscal-year deficit as a structural headwind that should ultimately push term premium back into the long end.