Yields trade in tight range after flat consumer spending in May

NEW YORK: Treasury yields traded in a tight range Friday after a reading of consumer spending in May showed that supply shortages as the economy rebounds from the coronavirus pandemic kept overall expenditures flat while helping boost inflation.

The Commerce Department said the unchanged reading in consumer spending, which accounts for more than two-thirds of US economic activity, followed an upwardly revised 0.9% jump in April.

The Federal Reserve's preferred measure of core inflation rose 3.4% from the year before and 0.5% from April.

The pace of inflation will not likely be enough to prompt the Fed to deviate from its plan to raise interest rates twice in 2023 or to begin tapering its support of the bond market, analysts said.

"We don't believe that this data will impact the Fed's current plans for reducing extraordinary stimulus and rate hikes," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. "They haven't publicized their plans explicitly, but between the most recent Dot Plot and Fed speeches, they have shown interest in beginning a tapering plan in the next 6-12 months."

The yield curve - a measure of expectations of future economic growth - steepened slightly, with the spread between 5- and 30-year Treasury yields edging up to 119.40 basis points from 118.60 the day before.

Treasury yields are likely to trade in a tight trading range given that "we see no obvious trigger on the horizon that would warrant another repricing ahead of next week's employment report," said Ian Lyngen, head of US Rates Strategy at BMO Capital Markets.

Benchmark 10-year Treasury yields hovered near 1.4817%, while shorter-term 2-year Treasury yields were essentially flat at 0.2661%. Long duration 30-year Treasury yields were unchanged at 2.096%.