US Treasury bond yields have declined slightly, while market participants are cautious ahead of the publication of the US GDP report for the 1st quarter and data on initial jobless claims for last week.
The yield on 5-year Treasury bonds fell by 1.3 basis points, reaching 4.646%, while the yield on 30-year bonds was 4.782% (-0.2 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 1.0 basis points to 4.927%, while the yield on 10-year bonds fell to 4.646% (-0.8 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 28 basis points.
The U.S. economy continued to expand steadily in the first quarter: GDP probably increased by 2.5% QoQ, which, however, is weaker than the unsustainably high figures of the previous two quarters. Consumers again did not seem to be bothered by higher interest rates and inflation during the quarter. Strong retail spending in March and the largest jump in service spending in more than a year in February indicate that real personal consumption expenditure increased by 3.0% QoQ. Meanwhile, investment in housing construction is likely to show the strongest quarterly growth in the last three years amid a revival in home sales and an increase in construction volumes. After the 1st quarter, experts expect a further slowdown in GDP growth compared to the second half of last year. High interest rates continue to put pressure on capital investment as orders for capital goods have been declining in recent months, along with non-residential construction costs. Government spending is also likely to slow down. And while consumers are still willing to spend, slower real income growth is likely to make it harder to maintain the recent pace of spending.
Meanwhile, the personal consumption expenditures price index, the Fed's preferred inflation indicator, will be published tomorrow. According to forecasts, the core PCE price index rose by 2.6% per annum in March after an increase of 2.8% per annum in February. The data could inform how Fed policymakers think about monetary policy and what decisions they come to regarding the outlook for interest rates. The next Fed meeting will be held on Wednesday, May 1, while economists expect interest rates to remain unchanged again.