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2026-02-20 21:59:34
[US Treasury Yields Mixed, GDP Slowing and Inflation Sticky] ⑴ US Treasury yields diverged on Friday, with the market searching for direction amid conflicting economic data. The 10-year Treasury yield fell slightly to 4.067% from 4.074% yesterday, while the 2-year yield rose slightly to 3.470% from 3.468%. This mixed performance reflects the tug-of-war between slowing growth and sticky inflation. ⑵ Growth data significantly weaker than expected. Fourth-quarter GDP annualized growth slowed sharply to 1.4% from 4.4% in the third quarter, far below the 2.5% forecast in a Wall Street Journal survey. The record government shutdown and slowing consumer spending were the main drags, providing support for expectations of interest rate cuts. ⑶ Inflation data unexpectedly rose. The personal consumption expenditure price index rose to 2.9% year-on-year in December from 2.8%, slightly higher than the expected 2.8%. Core PCE accelerated to 3% from 2.8%, in line with expectations but reaching its highest level since February 2025. The persistent stickiness of inflation reduces the urgency for the Fed to ease policy. (4) The data mix imposes a dual constraint on the policy path. A cooling economy should have been a reason for a rate cut, while stubborn inflation demands that rates remain unchanged. The latter is precisely the expectation reflected in the market's pricing of next month's Fed meeting. The interest rate futures market will recalibrate the timing and magnitude of rate cuts amidst the interplay of these two forces. (5) The narrow fluctuations in US Treasury yields reflect the market's wait-and-see attitude after the data release. The tug-of-war between growth and inflation is still unresolved, and geopolitical risks and improved liquidity following the return of Chinese participants next week may provide new variables for future trends.
