Two- through 30-year yields jumped Monday morning as the market prepared for data on consumer and producer prices in the next few days.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
was up 5.3 basis points at 5.075% from 5.022% on Friday. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 5 basis points to 4.679% from 4.629% on Friday. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
advanced 1.3 basis points to 4.790% from 4.777% on Friday.
What’s driving markets
Hopes that recent signs of a cooling economy can help ease inflationary pressures — and allow the Federal Reserve to halt its campaign of interest rate increases — will be put to the test in coming sessions. The October consumer price index report will be published on Tuesday and the producer prices data is set for release on Wednesday.
The CPI year-on-year core number, which strips out volatile items like food and energy, is expected to be unchanged at 4.1%, but the headline rate is forecast to fall to 3.3% from 3.7% in September.
Ahead of the data, markets are pricing in an 85.9% probability that the Fed will leave interest rates unchanged at a range of 5.25%-5.5% on Dec. 13, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by January is priced at 26%, up from 14.8% a week ago.
What analysts are saying
“The process of consolidation continues in the US rates market as investors await Tuesday’s CPI release,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.
“CPI is unlikely to shift the Fed’s thinking regarding another pause in December, still the most likely outcome,” they wrote in a note. “However, any upside surprise on the inflation front would, at a minimum, push rate cut forecasts further into 2024. We maintain that the market is discounting Powell’s hawkish resolve and the Committee’s willingness to maintain a restrictive policy stance even as the real economy shows increasing evidence of slowing to the point of contraction.”
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