The yield on US Treasury bonds declined slightly, while market participants took a wait-and-see attitude ahead of the Fed chairman's statements.
The yield on 5-year Treasury bonds fell by 1.2 basis points, reaching 3.509%, while the yield on 30-year bonds was 3.670% (-0.2 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 2.7 basis points to 4.429%, while the yield on 10-year bonds fell to 3.627% (-0.5 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 80 basis points.
Investors will be closely watching the speech of Fed Chairman Jerome Powell, hoping to get hints about the prospects for monetary policy, the economy and inflation. Yesterday, the president of the Federal Reserve Bank of Atlanta, Rafael Bostic, said that the Fed will probably have to raise the rate higher than previously expected, as economic activity in the United States slows down slightly.
Many investors are concerned about whether the rate increases have gone too high, too quickly and will therefore drag the U.S. economy into a recession. According to FedWatch CME Group, the probability of a 0.25% rate hike at the March Fed meeting is 93.7% compared to 82.4% a week earlier, while the probability of a 0.5% rate hike increased to 6.3% from 0.3% a week earlier.
Investors will also pay attention to the US trade balance report for December, which will be released at 13:30 GMT. According to forecasts, in December, the trade deficit increased to $68.5 billion from $61.5 billion in November.