Though the data had minimal impact, the numbers were nevertheless supportive of a flatter curve. The 0.2% and 0.3% declines in July PPI total and core were friendlier than expected, while the 15,000 drop in initial claims was on the bearish side of forecasts. The two-year note and 30-year bond spread narrowed about 10 basis point on the short end's underperformance.
Fed funds futures prices also gave back some of their premium as the market re-priced for a slightly less aggressive easing course from the Fed. As of Wednesday, the near-term contracts had reflected a little better than a 50-50 probability of a rate cut next Tuesday. But after having a night to sleep on those forecasts, the market reduced the risk to about 35%. End-of-year contracts, however, continue to be fully priced for a quarter-point easing.