Long-end Treasury prices are higher and the curve flatter following the Bank of Japan’s (BOJ) decision to keep its policy for future asset purchases unchanged. There had been some speculation that the central bank might increase its target yield for government debt, which would be expected to impact long-end European and U.S. government yields as well. This speculation contributed to the recent curve steepening in the U.S., but the BOJ chose to maintain its ultra-dovish policy for the foreseeable future. However, in the press conference that followed, the BOJ Governor Kuroda did provide a slightly hawkish twist, saying that the range of allowable yield deviation from the target level will double from 10 bps to 20 bps. Major global equity markets are mostly higher on the day, and S&P 500 futures are currently up 4 points.
June personal income and spending was largely in line with expectations, and the inflation data (PCE) was relatively tame (also close to expectations). The Employment Cost Index rose 0.6% in Q2, which was 10 bps below expectations and a 20 bps decline from Q1. On a year-over-year basis, ECI was up 2.8% in Q2, the highest since Q3 2008. Today’s data shows that wages and inflation continue to rise, but at a stable and more gradual pace than what was experienced in the first quarter.