Yield Movement
- The yield on the 2-year Treasury BX:TMUBMUSD02Y remained steady at 5.067%.
- The yield on the 10-year Treasury BX:TMUBMUSD10Y dropped 1.4 basis points to 4.631%.
- The yield on the 30-year Treasury BX:TMUBMUSD30Y decreased 1.5 basis points to 4.748%.
Market Factors
Benchmark Treasury yields are currently approximately 40 basis points lower than the 16-year highs witnessed last month. This decline is attributed to optimism surrounding a slowing economy, which may alleviate inflationary pressures and lead the Federal Reserve to cease its interest rate hike campaign.
Over the next few days, the market will be closely watching the October consumer price index report, scheduled for release on Tuesday, and the producer prices data, set to be published on Wednesday.
While the year-on-year core CPI number, excluding food and energy, is predicted to remain unchanged at 4.1%, the headline CPI is expected to drop to 3.3% from September’s 3.7%.
According to analysts at Saxo Bank, any unexpected increase in inflation could delay anticipated rate cuts. In addition, the UK will also release its inflation figures on Wednesday. Overall, yield curves are projected to continue steepening, with the longer end of the curve being susceptible to supply-demand dynamics and inflation expectations.
Currently, markets are pricing in an 89% probability that the Fed will maintain interest rates within a range of 5.25% to 5.50% after its next meeting on December 13th, based on data from the CME FedWatch tool.
The likelihood of a 25 basis point rate hike, resulting in a range of 5.50% to 5.75%, at the subsequent meeting at the end of January has increased to 26%, up from 15% the previous week.
According to 30-day Fed Funds futures, it is not expected that the central bank will revert its Fed funds rate target to around 5% until August 2024.
On a separate note, the U.S. federal budget update for October will be published at 2 p.m. Eastern, and Fed Governor Lisa Cook is scheduled to deliver opening remarks at a Fed conference at 8:50 a.m.
