US Treasury bond yields have declined moderately, while market participants continue to analyze the latest US data and try to predict the Fed's next steps.
The yield on 5-year Treasury bonds fell by 3.9 basis points, reaching 3.626%, while the yield on 30-year bonds was 3.755% (-2.3 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 3.4 basis points to 4.156%, while the yield on 10-year bonds fell to 3.541% (-3.1 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 62 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.
While the latest US data points to a slowdown in economic growth, individual sectors continue to show resilience, while inflation remains sticky. Fed officials have gone out of their way to point out that inflation remains unacceptably high and rates should continue to rise. Fed Board of Governors member Michelle Bowman reiterated that more work needs to be done to reduce inflation that is too high. Money markets show traders believe there will be a 0.25% rate hike next month, but this will be quickly followed by a series of rate cuts.
Today, investors will focus on the Chicago Federal National Activity Index for March, which, according to forecasts, fell to -0.3 points from -0.19 points in February. Later this week, the US GDP and PCE price index, the Fed's preferred measure of inflation, will be released.