U.S. Treasury bond yields have risen moderately, while market participants are preparing for the release of important U.S. data that may provide clues about the prospects for interest rates.
The yield on 5-year Treasury bonds increased by 4.5 basis points, reaching 4.318%, while the yield on 30-year bonds was 4.44% (+3.0 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, increased by 4.7 basis points to 4.695%, while the yield on 10-year bonds increased to 4.313% (+3.9 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 38 basis points.
The personal consumption expenditures price index (the Fed's preferred inflation indicator) will be presented today at 13:30 GMT. Economists expect core PCE to grow by 0.4% compared to December and by 2.8% per annum in January. A higher than predicted value will indicate more stable inflation than previously thought, which will increase the likelihood that the Fed will keep rates at the current level for a longer time. Recall that the previously published reports on CPI and producer prices for January exceeded economists' forecasts, as a result of which market participants revised their expectations regarding the timing of monetary policy easing. According to the CME FedWatch Tool, markets see a 20.4% probability of a 25 basis point rate cut at the Fed meeting in May, and a 55.6% probability of a rate cut in June, with approximately 80 basis points of cuts priced in for this year.