The benchmark 10-year U.S. Treasury yield closed Friday at 4.31%, down 11 basis points on the week and the lowest since March 4, after S&P Global's April flash composite PMI surprised to the downside at 50.8 versus the 51.7 consensus. The 2-year yield fell 14 basis points to 3.78%, while the 30-year yield slipped to 4.62%, the steepest one-week decline along the long end since November.
Fed funds futures now imply a 67% probability of a 25 basis point rate cut at the May 6 FOMC meeting and a 38% probability of a follow-up cut in June. The terminal rate priced in for end-2026 has slid to 3.62%, down from 3.85% just two weeks ago.
Why the PMI Print Mattered
Manufacturing fell to 49.4 — the first sub-50 contractionary print since November — while services slipped to 51.6 from 53.4. Most notably, the prices-paid sub-index dropped to its lowest level since February 2024, easing concerns that tariff pass-throughs would re-accelerate goods inflation. The University of Michigan's long-run inflation-expectations measure ticked down to 3.0%, the lowest reading in five months.
"The data give the FOMC just enough cover to deliver a precautionary cut, even if labor markets remain firm," wrote BofA chief U.S. economist Aditya Bhave. "But Powell will frame this as an insurance move, not the start of a sustained easing cycle."
Curve Steepening Resumes
The 2s/10s curve steepened to 53 basis points from 47 basis points the prior week, an early sign that rate-cut bets are translating into bull-steepener positioning. Mortgage REITs and regional banks benefited: the SPDR S&P Regional Banking ETF (KRE) gained 2.4% Friday, while AGNC Investment (AGNC) added 1.9%. The iShares 20+ Year Treasury Bond ETF (TLT) closed at $94.20, up 1.7% on the week and back near 52-week highs.
High-grade corporate spreads tightened to 86 basis points over Treasuries, the tightest level since 2007. Investment-grade primary issuance volumes hit $61 billion this past week, helped by Apple's $14 billion debut bond issuance for share buybacks. High yield spreads narrowed to 268 basis points, near the year's tights.