U.S. Treasury bond yields have declined moderately, while investors are awaiting the release of U.S. data that will help clarify the current state of the economy.
The yield on 5-year Treasury bonds fell by 2.5 basis points, reaching 4.289%, while the yield on 30-year bonds was 4.388% (-3.0 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, fell by 2.3 basis points to 4.693%, while the yield on 10-year bonds fell to 4.27% (-2.9 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 42 basis points.
Investors considered the state of the economy as they looked to data for hints about how it is faring amid higher interest rates and persistent inflation. This week, market participants will focus on data on durable goods orders for January, the GDP report for the 4th quarter, as well as the personal consumption expenditures price index (the Fed's preferred inflation indicator) for January. These data are expected to provide new clues about when the Fed may begin easing monetary policy. Fed officials have repeatedly said their decision-making would be data-led, and are looking for further evidence that inflation is moving toward the 2% target. According to the CME FedWatch Tool, markets see a 18.7% probability of a 25 basis point rate cut at the Fed meeting in May, and a 59.0% probability of a rate cut in June, with approximately 80 basis points of cuts priced in for this year.