U.S. Treasury yields and the dollar slipped on June 26 as investors reacted to softer-than-feared PCE inflation data and lower oil prices, which eased pressure on Fed rate-hike expectations.

U.S. Treasury yields and the dollar moved lower Friday as investors took a softer reading on inflation and a sharp drop in oil prices as signs that Fed rate pressure may be easing.

The move followed the May personal consumption expenditures report, the Federal Reserve's preferred inflation gauge, which had already calmed some worries about the inflation outlook. By intraday trade on June 26, Barron's reported the 2-year Treasury yield at 4.089% and the 10-year yield at 4.377%, while the DXY dollar index was down 0.2%.

Earlier in the session, the Wall Street Journal reported the 10-year yield around 4.392% and the 2-year around 4.102%, with the WSJ Dollar Index down 0.1%. Traders also pointed to oil prices falling about 3% as a major reason the market was dialing back expectations for additional Fed hikes.

Why the move matters

Lower Treasury yields can reduce borrowing costs across the economy, from mortgages to corporate lending. A weaker dollar can affect import prices, commodity markets and global risk sentiment.

The market response remained modest rather than dramatic. Long-dated yields were steadier than shorter maturities, suggesting traders were primarily adjusting expectations for the near-term path of Fed policy rather than pricing a broader change in the inflation outlook.

What traders are watching next

Market participants are now watching whether Treasury yields extend their decline into the next U.S. session. They are also looking for more Fed commentary or fresh economic data that could confirm, or reverse, the repricing.

Oil prices and any further signs of progress in U.S.-Iran diplomacy remain part of the market narrative, since both can feed into inflation expectations and demand for safe-haven assets.

CME FedWatch pricing, as cited in the reports, showed traders assigning about a 42% chance of one U.S. rate increase this year and a lower chance of a second hike than a week earlier, underscoring how quickly expectations have shifted.

Revision note

Initial automated publication.