By Herbert Lash

NEW YORK (Reuters – U.S. Treasury Yields dropped from Friday’s highs after the Federal Reserve’s preferred inflation gauge rose in January more than predicted. But, U.S. Treasury yields remained muted because of uncertainty resulting due to Russia’s invasion.

Last month’s price index for personal consumption expenses (PCE), increased 0.6%, which is one-tenth more than December. However, over the twelve months prior to January, the PCE index rose 6.1%. This was the highest increase since February 1982.

In January, the so-called core PCE index price index jumped 5.2% from 4.9% to 5.2%. This is an increase of 5.2% over December’s 12. Months. This was the biggest core number gain since April 1983.

Market interest rates would normally have increased on more data, however, an equities market that was less fear-averse in the U.S. and Europe where most major indices trade higher had higher risk-adverse sentiment.

The yield picture doesn’t look good with these yields. “And the Fed being behind,” David Petrosinelli from InspereX New York said.

He said, “Rates would have been higher today if it hadn’t happened,”

Prior to the data release the yield on the 10-year Treasury notes was about 3 basis point higher at 2.022%. It was the first benchmark above 2% this week.

At 1.972%, the yield on was unchanged but it fell below 2%.

An important part of the U.S. Treasury Yield curve that measures the gap between two- and 10 year Treasury Note yields, used as an indicator for economic outlook, was watched closely at 37.2 Basis Points.

Flattening the yield curve suggests a slowdown, or worse, recession is ahead. It also indicates that the Fed was too slow in its preparations for raising rates next month.

Petrosinelli stated that this is an early flattening. “This indicates a firm landing but not soft, perhaps a bit more difficult landing,” Petrosinelli said.

Markets priced in a 22.5% chance of a rate rise in March by 50basis points, up slightly from Thursday, but lower than the level before Russia attacked Ukraine.

At 1.598%, the two-year U.S. Treasury Yield, which is usually in line with interest rates expectations, rose 5.2 basis points.

At 2.995%, the breakeven for U.S. Treasury inflation-Protected Securities (TIPS), five year-old securities was at last.

Inflation at the 10-year TIPS rate of 2.569% was recorded last year.

Last year, the U.S. dollar 5-year forward inflation-linked Swap was at 2.403%. This is considered a more accurate indicator of inflation expectations because it excludes possible distortions due to Fed’s quantitative ease.