US Treasury bond yields mostly declined, while market participants were preparing for the publication of US data and the start of the corporate earnings season.
The yield on 5-year Treasury bonds fell by 2.2 basis points, reaching 3.485%, while the yield on 30-year bonds was 3.694% (+0.8 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 1.1 basis points to 3.966%, while the yield on 10-year bonds fell to 3.439% (-1.2 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 53 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.
The latest US data indicated a weakening of inflationary pressure, which increased the likelihood that the Fed may soon complete its cycle of tightening monetary policy. According to the CME FedWatch Tool, money markets are pricing in a 69.2% chance the Fed will raise interest rates by 25 basis points next month, though a series of cuts are also being priced in from July through to the end of the year, with rates seen just above 4.3% in December.
Investors are also preparing for the corporate earnings season for the first quarter, the unofficial start of which will be given by today's publication of the reports of three banks - JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C). Analysts expect rather weak results from S&P 500 companies following the results of the reporting period: their total profit is estimated to show a decline of 5.2% per annum.
In addition, data on US retail sales for March will be published today, which will be analyzed for the impact of inflation on consumer spending. According to forecasts, retail sales fell by 0.4% after a similar decline in February. Also today, the Reuters/Michigan consumer sentiment index for April will be presented, with special attention will be paid to the components of consumer inflation expectations. Economists expect the consumer sentiment index to remain at 62 points.