The yield of US Treasury bonds shows mixed dynamics, while market participants are preparing for the publication of the next batch of US data.
The yield on 5-year Treasury bonds rose by 0.5 basis points, reaching 3.483%, while the yield on 30-year bonds was 3.648% (-0.7 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 0.2 basis points to 3.97%, while the yield on 10-year bonds increased to 3.424% (+0.3 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 55 basis points. Experts note that the yield on 2-year Treasury bonds is below the Fed funds rate, which historically signals that the Central Bank is nearing the end of its rate hike cycle.
Yesterday's US data, indicating a subdued rise in consumer prices in March, confirmed that the economy is responding to the Fed's previous interest rate hikes. The report also reinforced hopes that the rate increase in May will be the last in the current cycle of tightening Fed policy. According to the CME FedWatch Tool, markets estimate a 66.5% probability of a 25 basis point rate hike at the next Fed meeting. In addition, the markets see a 63.1% probability that rates will remain at 5.00-5.25% in June, a 29.9% probability that they will be lowered to 4.75-5.00%, and a 7% probability that they will be raised to 5.25-5.50%.
Meanwhile, the minutes of the Fed's March meeting showed that the consequences of the banking crisis in the United States are likely to lead the economy into recession at the end of this year. “Taking into account the assessment of the potential economic consequences of recent events in the banking sector, the staff forecast at the time of the March meeting included a moderate recession, which will begin later this year, with recovery over the next two years,” the minutes showed.
Forecasts following the meeting showed that Fed officials expect gross domestic product to grow by only 0.4% for the whole of 2023. Given that the Atlanta Fed estimates first-quarter growth of about 2.2%, this would indicate a pullback later this year.
Today, investors will focus on the report on the producer price index for March and weekly data on the number of initial applications for unemployment benefits. According to the forecast, producer prices did not change compared to February and increased by 3% per annum, while the number of initial applications for unemployment benefits amounted to 232 thousand compared to 228 thousand a week earlier.