Bond yields dipped early Monday as the market prepared for consumer and factory gate inflation in the next few days.
What’s happening
-
The yield on the 2-year Treasury
BX:TMUBMUSD02Y
was barely changed at 5.067%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
retreated 1.4 basis points to 4.631%. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
fell 1.5 basis points to 4.748%.
What’s driving markets
Benchmark Treasury yields sit around 40 basis points below the 16-year highs touched last month amid hopes that recent signs of a cooling economy can help ease inflationary pressures and allow the Federal Reserve to halt its campaign of interest rate rises.
That narrative will be put to the test in coming sessions as the October consumer price index report is published on Tuesday and the producer prices data released on Wednesday.
The CPI year-on-year core number, which strips out volatile items like food and energy, is expected to be unchanged at 4.1%, but the headline is forecast to fall to 3.3% from 3.7% in September.
“Any surprise to the upside could push back expectations for future rate cuts,” analysts at Saxo Bank. “On Wednesday, inflation figures are also released in the UK. Overall, we expect yield curves to continue to steepen, and the long part of the yield curve to remain vulnerable to supply-demand dynamics and inflation expectations.”
Ahead of the data, markets are pricing in an 89 probability that the Fed will leave interest rates unchanged at a range of 5.25% to 5.50% after its next meeting on December 13th, according to the CME FedWatch tool.
The chances of a 25 basis point rate hike to a range of 5.50 to 5.75% at the subsequent meeting at the end of January is priced at 26%, up from 15% a week ago.
The central bank is not expected to take its Fed funds rate target back down to around 5% until August 2024, according to 30-day Fed Funds futures.
The U.S. federal budget update for October will be published at 2 p.m. Eastern. Fed Governor Lisa Cook will deliver opening remarks at a Fed conference at 8:50 a.m..
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