Treasurys were being bought Friday, pulling yields down, as the Federal Reserve’s preferred inflation gauge rose sharply in June, but by less than forecasters had expected.

The session will mark the final trading day in July, which has seen long-dated debt yields mostly fall to four- or five-month lows. Meanwhile, equities remained at or near record levels amid an economic recovery from COVID-19, which has been marked by a spike in new virus cases sparked by the spread of the delta variant.

What yields are doing

The 10-year Treasury note

yields 1.252%, compared with 1.269% at 3 p.m. Eastern on Thursday. Yields for debt fall as prices rise.

The 30-year Treasury yield

was at 1.905%, versus 1.916% a day ago.

The 2-year Treasury note rate

was at 0.196%, compared with 0.202% on Thursday.

Fixed-income drivers

The Federal Reserve’s preferred U.S. inflation measure rose sharply again in June and the increase over the past year remained at a 13-year high, raising the cost of living for consumers and casting a shadow over a strong economic recovery.

The so-called personal-consumption expenditures index rose 0.5% in June, government figures show. Economists polled by the Wall Street Journal had expected the Commerce Department to report that PCE, a measure of household spending on goods and services, increased 0.7% last month.

It was the fourth big rise in a row and kept the increase over the past 12 months at 4%.

A separate measure of inflation that strips out volatile food and energy prices climbed to the highest level since 1992: The core PCE price index rose 0.4% in June, and its increase over the past 12 months crept up to 3.5% from 3.4%. The core measure is viewed by the Fed as a better indicator of underlying inflation.

Meanwhile, the most comprehensive gauge of the rise in labor costs decelerated in the second quarter. The employment cost index rose 0.7% in the second quarter, after rising 0.9% in the January-March quarter, the Labor Department said Friday. Economists polled by the Wall Street Journal had forecast a 0.9% increase.

The data come after a reading of second-quarter U.S. gross domestic grew at a 6.5% annualized rate, with consumer spending climbing sharply at an 11.8% annual rate. Spending on services contributed the most to the change in GDP, followed by purchases of goods.

A measure of business conditions in the Chicago region, the Chicago Business Barometer, and the University of Michigan’s consumer sentiment data for July will be released at 10 a.m ET.

What strategists and traders say

June’s core PCE climbed less than forecasters expected on a month-over-month and year-over-year basis — suggesting “inflation might have peaked for the time being,” said strategist Ian Lyngen of BMO Capital Markets. “Overall, an underwhelming set of data on the inflation side as it showed a slowing trajectory during the latter part of Q2.”

“From here, there is little notable data to drive price action into month-end, leaving us focused on rebalancing flows as July comes to a close,” he wrote in a note Friday.

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